When Lost Sales Have Nothing to Do with Lost Customers

Loss from organized retail crime at a record

Author: Andria Cheng

November 17, 2017

As retailers gear up for their biggest selling period of the year, they have to figure out not only how to drive customer traffic, but also how to prevent loss due to theft.

Retailers’ losses from organized retail crime, or ORC, have hit a record, averaging $726,351 per $1 billion in sales in the past year, up 3.7% from $700,259 last year, according to trade group National Retail Federation’s 13th annual ORC survey released Friday.

The NRF defines organized retail crime as "the large-scale theft of retail merchandise with the intent to resell the merchandise for financial gain." 

As an example of the scope of this type of retail crime, a 12-person ring was busted and charged this year with stealing millions in high-end electronics and ink cartridges from Staples, Office Depot and Best Buy in New York and 27 other states and reselling them on Amazon and eBay. Law enforcement officials described it at the time as one of the “largest-ever busts” of a retail theft ring. 

The study, which polled 63 retailers representing over 100 brands across department store, big-box, discount, drug, grocery and specialty retailers in September and October, also found that 96% of respondents were victims of organized retail crime in the past year alone. Worse yet, 67% of retailers reported an increase in those crimes, according to the study.

“This is part of the shrink problem,” said NRF’s Vice President for Loss Prevention Bob Moraca in an interview. Whereas for a long time employee theft was the top cause of retailers’ shrink issue, organized retail crime in the past three years is now the leading cause, representing almost two-fifths’ of total shrink. Employee theft fell to the second place, followed by other reasons such as administrative mistakes and vendor fraud, he said.

“Years ago, you would be in ‘loss prevention,’ and when a crime took place, you respond,” Moraca, who has nearly 40 years of experience in the areas of asset protection, law enforcement and corporate security. “Now retailers and restaurants are soft targets (and have to fight other problems including terrorism). The job is very proactive. This is a battle for survival.”

Industrywide total “shrink” last year rose to a record $48.9 billion last year, up 8.2% from a year earlier, according to a separate study released earlier this year by the NRF and the University of Florida.

Six in 10 retailers had recovered merchandise from physical locations including pawn shops, flea markets and pop-up shops, while the percentage of retailers finding stolen goods online declined to 56% from 75%, the survey released Friday showed. Meanwhile, 28% of retailers had found their stolen goods exported overseas illegally. Products like stolen iPhones could fetch two to four times their retail value in black markets in Latin America, Moraca said.

“The simple reason is it’s extremely profitable” for the criminals, Moraca said, adding organized retail crime like other criminal activities also is expected to go up during the holidays. Criminals “have a ready-made customer base. People will buy things on the discount. Everybody wants a deal.”

Along with the rise of organized retail crime, the NRF study also found return fraud remains a big issue: retailers expect 11% of products consumers return to be fraudulent. The percentage goes up to 17% of items returned without a receipt.

Meanwhile, the retail industry has an unusually high incidence rate for call center fraud. According to Pindrop data released earlier this year, one in nearly 500 retail call center calls was fraudulent in 2016.

Interestingly, as retailers push for more “just-in-time” inventory and sometimes even keep some merchandise in trucks so they can respond to demand much faster, “cargo theft” is also on the rise, Moraca told eMarketer Retail.

Retailers aren’t standing still. In June, some 3,000 attendees, representing institutions like the Department of Homeland Security and companies from Amazon and Walmart to Bloomingdale’s and McDonald’s, gathered for NRF’s annual Loss Prevention Conference and Expo.

Retailers also are employing technologies including video analytics and AI to study unusual behavior such as when a cashier’s drawer may be open longer than usual, Moraca said. Most retailers have some sort of loss prevention departments also. For retailers like Target, for instance, the fight has been taken up one notch: Target has an accredited forensic services lab with teams based in Las Vegas and its hometown of Minneapolis to help fight crimes including organized retail crimes and using such tools as video and image analysis, latent fingerprint and computer forensics.

Meanwhile, even though there may still be some resistance to the growing push for brick-and-mortar retailers to share data to learn more about consumers, it looks like when it comes to fighting crime, retailers are already willingly cooperating.

“There’s a lot of talking and sharing,” Moraca said. “We aren’t competing with each other.”