The Next Hurdle For Retailers: Organized Crime

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by Tyler Durden
Tuesday, Nov 07, 2017 - 21:10

Organized crime is the newest and most profound threat to the U.S. retail industry (besides the fear of Amazon and or filing for bankruptcy).

Loss prevention professionals are scrambling to combat highly organized criminal rings operating across state lines deploying armies of “boosters”, who go into stores to steal anything from designer clothes, infant formulas, and electronics.

The cost of organized retail crime has increased for all retailers. Back in 2016, the National Retail Federal (NFR) said “retailers see an average impact of $700,259 per $1 billion in retail sales. That is up significantly from 2015’s $453,940”. 

Jim Cosseboom, manager of investigations and corporate asset protection for the supermarket operator Ahold USA, parent company of Giant, Food Lion and other chains, warns those who are participating in organized retail crime are becoming more brazen and dangerous.

“What they’re targeting is always shifting,” he says, from a mix of high-end luxuries to everyday commodities. Most items can be sold for quick cash on city streets.

National Retail Federation (NFR) outlines the various types of organized crime:  physical and online fencing, cargo theft and issues with gift cards and merchandise credits

Physical Fencing: In all, 63% said they had identified or recovered stolen merchandise from a physical location, such as a store, swap meet or pawn shop. That is down from 2011, when 75% said they had. Of the types of location, finding stolen merchandise in kiosks, temporary/pop-up stores and swap meets all declined over the 2015 figures. Other types of locations increased slightly, with respondents listing warehouses, street vendors and residences.


E-fencing: Recovering stolen items advertised on the Internet — online auctions, classifieds and blog listings — is becoming more common. Nearly six in 10 (58%) have identified stolen merchandise on online auction sites, which is significantly higher than the previous year (39%). All forms of e-fencing have seen an increase. Other websites — such as social media sites — increased from 28% in 2015 to 39% in 2016.


Merchandise credit and gift cards: Stolen merchandise returned for gift cards/store credit and then resold continues to challenge retailers. Two in three retailers — 68% — reported this as an issue. The number has dropped since 2013, when 78% reported this problem. 64.4% reported finding credits or gift cards on websites while one in three said they have found them in pawn shops. Check cashing (15.3%) and other venues (8.5%) like gift card exchange sites are also places where stolen gift cards and store credits are found.


Cargo Theft: With cargo theft, organized retail criminals can score on a much bigger level. In 2016, 44% of those surveyed reported they had been a victim of cargo theft. While this does not reach 2012 levels — when 52% of those surveyed reported cargo theft — it is on the rise again after two years of decreases.

The report also points out new trends in organized crime highlighting “shoplifters are becoming more aggressive”. Criminals are becoming bolder, riding a decriminalization trend by states that has reduced shoplifting to a misdemeanor. Retailers affected by organized crime offer thoughts on trends: 

Decriminalization of shoplifting has led to higher theft per ORC incident. “The felony limit used to be $500, so they would steal $490 per store. Now, with many states having increased the felony limit to $1,500, they steal $1,490 per store.”


Online fraud rates have increased. “Our online fraud rates have tripled. We use software to highlight risky transactions for loss prevention review prior to shipping. We have stopped over $350,000 from being shipped due to fraud.”


E-gift cards purchased with stolen credit cards is a growing problem. “People have been purchasing e-gift cards with stolen credit card information in large amounts. They then re-sell the cards or use them.”


ORC is turning toward credit card and gift card fraud. “Frequently these individuals are people known to us from prior shoplifting incidents. The gift cards are used online and the packages shipped to the same area. Generally, not the same addresses, but multiple addresses within a few-block radius.”


Gift cards purchased on reseller sites often are based on merchandise stolen and returned to store for a store credit. “Over the past 12 months we have seen more and more gift cards being sold on sites. When researched, all come back to no-receipt returns in stores.”


Law enforcement may have difficulties determining proper jurisdiction for these crimes. “Laws need to be updated on these types of credit card fraud scams.”

Robert Moraca, vice president of loss prevention for the National Retail Federation, says the increase in organized is being fueled by the opioid epidemic, as those who are addicted steal for quick cash to fund the next high. In a recent speech, President Trump outlined more than two million Americans had an addiction to prescription or illicit opioid in 2016.  This is more bad news for retailers, as the opioid crisis is only expanding.

Last year, National Retail Federation (NFR) reported that organized crime cost retailers $30 billion. Retailer’s solution to combat organized crime is to allocate additional resources for technology and staffing.

Los Angeles, New York, and Chicago are America’s top cities for organized crime. Interesting enough, organized crime on the east coast follows the I-95 corridor, as seen on the chart below.

According to The Baltimore Sun,

Coordinated efforts between retailers, store security, law enforcement and prosecutors have helped, analysts say, as has the emergence of associations focused on fighting organized retail crime. The Mid-Atlantic Organized Retail Crime Alliance, which includes Maryland, brings together retailers, law enforcement, security and loss prevention officials to share data and intelligence on organized theft, robberies, counterfeiting, check and credit card fraud and other scams.


Thirty-four states have enacted laws against organized retail crime. Maryland has not. The Maryland Retailers Association wants legislation that would distinguish between organized retail theft and other types of theft. 


“Being on the I-95 corridor, we are particularly susceptible to organized retail crime,” association President Cailey Locklair Tolle says. “Shoplifting in Maryland, both the instances of theft and the dollar amount that’s stolen every year, has steadily been on the rise, and part of it does have to do with organized retail crime.”

In September, the Federal Government announced they broke up a San Diego-based shoplifting ring that stole upwards of $20 million worth of high-end merchandise from malls around the United States, including at least one store in Maryland.

New York’s attorney general said, the leader of a theft ring that stole millions of dollars of electronics and ink cartridges from big-box retailers and resold them on websites such as Amazon and eBay pleaded guilty to the top criminal charges he faced.

Bottomline: will the trend in organized retail crime be the final death blow for U.S. retailers who are already struggling to survive?