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The $30 Billion Problem

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The organized retail criminal is driving prices higher by systematically and strategically taking advantage of our open and trusting society.
Sheriff Grady Judd, Polk County (Fla.)

Organized retail crime continues to plague the industry

Organized retail crime continues to account for significant financial losses. According to the National Retail Federation’s 10th annual ORC Survey, it costs retailers approximately $30 billion a year.

“These are not ordinary thieves, opportunists or people making bad choices,” says Jerry Biggs, Walgreens’ ORC division director. “We’re talking about criminals engaged in human trafficking, drugs and terrorism. They’re committing retail crime to fund another illicit activity.”

Bricks-and-mortar stores were the hardest hit in the last decade, but online retailers are now reporting significant ORC losses: Some 48 percent of online retailers in the NRF survey said they have been affected. Rich Mellor, NRF’s senior advisor for asset protection, says ORC has created maximum concern across the board.

More than 88 percent of surveyed retailers reported being ORC victims; the average case value for those who have lost money to organized retail crime is $2.8 million. The unluckiest of all — some 13 percent of respondents — lost more than $5 million. These losses have opened the eyes of an industry.

“For the better part of 15 years, savvy criminals and the enterprises they’re a part of have forced retailers to change how they deal with fraud, including maximizing efforts to partner with and educate law enforcement,” Mellor says. “These partnerships have become a crucial part of the fight against retail crime gangs. While those invested in tracking down retail criminal enterprises can point to some success, it’s evident there’s still a big fight ahead of us.”

About three-quarters of those surveyed said they are allocating resources to combat ORC. Of that group, 23 percent are adding staff, 35 percent are adding technology and 17 percent are adding budget resources.

“Those jobs didn’t exist 10 years ago,” says Gus Downing, an ORC prevention consultant. “The retail industry is spending over $38 million a year on ORC [staffing] … that’s a huge impact on a micro level.”

Of course, the impact is not just felt at the business level. Cities, counties and states are losing out on tax revenue, while the criminal earnings fuel drug and violent crime. This alone has led to local law enforcement agencies creating special task forces to thwart ORC. In 2013, Florida’s Polk County Sheriff Grady Judd created the country’s first dedicated local Organized Retail Crime Unit.

Judd says this is not just a retail problem. “Organized retail theft has become a huge problem in Florida and across the nation,” he says. “Our family members, friends and fellow citizens are being ripped off when they shop … [because] the organized retail criminal is driving prices higher by systematically and strategically taking advantage of our open and trusting society.”

He says criminals are attracted to ORC because the risk is low.

“Many times shoplifters are caught and released by retailers without a criminal charge, and maybe given a trespass warning,” he says. “When law enforcement is called, the response can be inconsistent because ‘Shoplifting is minor, there’s more serious crime to worry about.’ Some agencies give a simple notice to appear and release the shoplifter. In some cases, the response is even less.”


Combating ORC
When it comes to stopping ORC, technology is almost always the first thing mentioned. Video cameras, electronic article surveillance equipment and facial recognition software are key drivers for fighting retail crime, Downing says.

But for all the technology, “Nothing beats good old-fashioned customer service,” Biggs says. Less sales staff than ever before gives prolific thieves greater opportunity. “They are in and out of the store in three to four minutes,” he says. “A lot of good customer service will deter the opportunities to steal just by being there.”

Technology does play a role, he admits: “Technology helps identify people.”

Biggs says the most-important component to combating ORC is working with local law enforcement and helping them build cases. Walgreens’ ORC method is to go after the financier, rather than focusing on the offenders.

“You have to go after the finance. The mid-level guys have orders to fill — choke out the blood flow and you cut it out,” he says.

Once they are arrested, Walgreens sues the criminals for stolen merchandise. “It’s great to yell ‘The sky is falling’ about ORC, but we have to be able to look at this more logically,” he says. “You take from me, I’m going to take your car or put a lien on your home to pay my company back.”

Federal ORC legislation is still needed to help support the effective efforts at the state level, since the criminals tend to operate across multiple states.
Jon Gold, NRF

Legal issues
According to a December 2011 Congressional Research Services report, ORC is defined as “violating a state ban against shoplifting or retail merchandise theft — if the quantities of items stolen are of the amount that would not normally be purchased for personal use or consumption — and stealing for the purposes of reselling the items or reentering them into commerce.”

But ORC is not included in the federal criminal code, and only 26 states have enacted laws specifically against ORC. The others still consider ORC ordinary shoplifting.

In the NRF survey, 31 percent of respondents said they have noticed a reduction in ORC activity in states where laws are present. Additionally, of those retailers who have a presence in states with existing ORC laws, 52 percent noticed a positive impact on their ability to prosecute ORC offenders more effectively; 89 percent said they have noticed an increase in support from law enforcement agencies when actively investigating cases of organized retail crime.

“While state laws are putting a dent in the level of ORC cases each year, we believe federal ORC legislation is still needed to help support the effective efforts at the state level, since the criminals tend to operate across multiple states,” says NRF Vice President of Supply Chain and Customs Policy Jon Gold.

In 2005, an ORC amendment was included in the Violence Against Women and Department of Justice Reauthorization Act. The federal law would fund a $5 million FBI-led task force to establishment a national database in the private sector to track and identify organized retail theft-type crimes being committed in the United States. But Congress never wrote the check.

Sen. Richard Durbin (D-Ill.) and Rep. Robert Scott (D-Va.) have pursued legislation to make ORC a federal crime and give law enforcement the tools to make prosecution easier, but nothing has been passed as yet. Industry insiders fear their efforts are just putting a bandage on a gaping wound.

“We need federal legislation to attack ORC,” says loss prevention consultant Joseph LaRocca. “We have to get all the federal law enforcement agencies on board and get ahead of the problem.”

ORC Timeline

May 2005
The National Retail Federation issues its first Organized Retail Crime Survey.

July 2005
The Violence Against Women and Department of Justice Reauthorization Act of 2005 includes an amendment granting the FBI funds to establish an ORC task force. Signed into law by President George W. Bush in January 2006, it authorizes $5 million for education and training of federal law enforcement for each of the fiscal years 2006 through 2009; Congress never issues the funds.

November 19, 2008
TV personality Dr. Phil exposes shoplifting couples, including a family that earned $1 million over six years. While this illustrates criminals in the act, the confession also demonstrates dishonest methods for bringing in extra money in a tough economy.

March 6, 2009
The Polk County (Fla.) Sheriff’s Department arrests 21 suspects in an extensive crime ring that made millions reselling stolen baby formula. The case opened retail’s eyes to the large-scale ORC problem.

March 22, 2010
In response to syndicates stealing from NRF members and selling goods on eBay, the online auction site and NRF partner to support the FBI in combating ORC. The effort leads to hundreds being apprehended.

January 6, 2011
The Congressional Research Service issues a detailed report about organized retail crime. The report cites dozens of industry sources, including the NRF, and educates Congress about the challenges in defining ORC, pointing out “ORC is not a federal crime.”

December 22, 2012
Michigan governor Rick Snyder approves the Organized Retail Crime Act, making ORC a state felony punishable by imprisonment for up to five years and/or a fine of $5,000. In most states, however, ORC remains a misdemeanor.

December 2013
Nearly 10 years after the first ORC survey, every major retailer employs ORC investigators or outside firms.

How Things Have Changed

It wasn’t all that long ago that the concept of organized retail crime did not exist. People shoplifted, and that was it.

“In the early part of my career, I apprehended people for stealing. It never dawned on me that people were making a living” at it, says Jerry Biggs, director of Walgreens’ ORC division.

Back in the 1980s, Biggs says, opportunists and personal-use thieves were the culprits. Now, it’s a high-profit, low-risk crime. “The money that can be made is attractive,” he says.

The method by which these criminals operate has also changed.

“The Internet has allowed ORC to spiral out of control,” says ORC consultant Gus Downing. Thieves used to set up tables on street corners, sell merchandise to pawn shops and offer cheap deals at flea markets. Now, they have the whole world at their disposal.

“Because they can sell stuff anywhere, anytime and ship it anywhere, anytime, we’ve got ORC groups shipping merchandise to Australia, Europe and Asia,” Downing says. “We’ve got ORC folks that actually live in Asia that are using American credit cards to buy merchandise in America, and have it shipped over to them … and sell it in Asia.”

Consumers have also changed. Time was, patrons buying sunglasses on a New York street corner knew they were buying stolen property. Nowadays, consumers may not have the slightest clue they’re buying “hot” merchandise.

“Honest people are buying stolen merchandise and counterfeit merchandise,” Downing says. “They don’t go downtown to a bad store and buy something hot. All they’ve got to do is turn on their computer and buy it off of Craigslist.”

Of course, Craigslist’s cooperation may change. It did with eBay, where ORC thieves were allegedly making millions.

As criminals have changed methods, so have retailers. Since 2004, the NRF and many retailers have been on the offensive working to change state and federal laws, while also building consumer awareness about ORC.

In 2010, eBay partnered with NRF and the FBI to attack ORC. The partnership provided for greater information sharing to target ORC investigations, which would further support the investigative efforts of federal state, and local law enforcement working with LP professionals.

“NRF has done a great job of shining a spotlight on the issue of organized retail crime, but retailers cannot fight this problem alone,” Paul Jones, eBay’s global director of asset protection, said at the time. “Through this partnership, NRF and eBay are putting criminals on notice that they will no longer be able to steal from retailers and abuse the online marketplace for profit.”

This partnership had an immediate impact, says loss prevention consultant Joseph LaRocca.

“The eBay partnership narrowed down the reseller technique,” LaRocca says. Resellers have become “a little more desperate and a little more anxious” to find new resale avenues, like returning stolen items for store credit or gift cards.

Although data breaches have not been unilaterally lumped into ORC and have been mostly observed as a credit card security issue, LaRocca says the retailer is the victim in the data breach. Data breaches not only use fraudulent card numbers that will eventually result in refunds through fraud services or chargebacks, but the merchandise purchased with those cards is stolen — giving retailers a double whammy in loss.

Major Crimes

In the annals of organized retail crime, some cases are immortalizedfor their sheer breadth and scope. These five could sit at or near the top of any such list.

March 2014
In South Florida, criminals stole more than $15 million in products from Walgreens, CVS and Publix, targeting diabetes strips, painkillers and heartburn medication. Prosecutors filed charges against 23 people, including mid-level “fences” who worked with the higher-ups. Miami-Dade State Attorney Katherine Fernandez Rundle called the group a “massive criminal enterprise.”

January 2012
Criminals targeting the electronics department of stores like Target hauled in as much as $6 million. The shoplifters used a box-stuffing technique that removed items from larger boxes and refilled the boxes with electronic items; the group would then pay for the original item or steal the box from the store and sell the items contained within. The leader of the group was the CEO of a San Diego-area goods export company.

September 2011
A six-month investigation in Northwest Ohio, Southeast Michigan and Indiana led to the indictments of 68 people for stealing $250,000 in merchandise and gift cards from big-box stores. Prosecutors said they likely stole more, adding that the crooks would shoplift items and then return them.

January 2011
As a part of the U.S. Department of Homeland Security’s crackdown on international crime, DHS’s Immigration and Customs Enforcement investigations unit raided the home of two Vietnamese exchange students at Minnesota’s Winona State University, seizing documents and computer equipment. According to an affidavit filed in support of the search warrant request, the students earned more than $1.2 million selling software, video games and Apple gift cards on eBay — shipping buyers products that they’d purchased with stolen credit card numbers.

March 2009
In what is considered the case that caught the retail industry’s attention, a multi-agency task force brought down an ORC syndicate that stole more than $17.5 million worth of baby formula. The six-month investigation was led by the Polk County Sheriff’s Office and Florida Department of Law Enforcement, working in conjunction with the State Attorney’s Office of the Tenth Judicial Circuit, U.S. Department of Agriculture and the Food and Drug Administration Criminal Investigations Division. In all, 40 detectives arrested 21 suspects who were stealing formula from stores in six Florida counties and transporting it out of state.

June 2008
Two professional shoplifting syndicates in San Jose, Calif., stole from stores including Safeway, Target, Walgreens, Longs Drugs and Save Mart, accumulating more than $14 million in assets. In their guilty pleas, the defendants admitted they conspired to distribute stolen over-the-counter health and beauty products through the San Jose business JV Tools & Wholesale.

James Ostojic Headshot

James Ostojic

True Detective

Sergeant James Ostojic of the Polk County (Fla.) Sheriff’s Office began working with organized retail crime in 2007; he coordinated efforts between retailers and local and state agencies in an investigation that resulted in the arrest and successful prosecution of 18 defendants in a case involving over-the-counter medications and health and beauty products. In 2013, Ostojic took charge of the Polk County Organized Retail Crime Unit. STORES contributing editor Fred Minnick recently spoke with Ostojic.

Tell us about your career.
Once I became a full-time deputy sheriff, I worked my way through the ranks starting out in the patrol division, community policing and street crimes. After the Uniform Division, I worked multiple detective areas … . I was then promoted to the rank of sergeant … [supervising] patrol and a street crimes unit.

What were criminals like then, versus today?
When I began investigating ORC, the criminal element was using elaborate means of running their criminal enterprise. Today’s criminals use their own homes to run illegal enterprises, and the Internet is a widely used resource.

When you assess the two types of criminals, what has changed?
The volume and frequency of thefts. It truly is a full-time job for some of the offenders. The other major difference is the bold tactics used by the offenders — in many cases they are not afraid of detection and will do whatever it takes to escape.

When you first started, how difficult was it to get people to take ORC seriously?
Very difficult. The common belief was that retail theft is a minor crime and unfortunately there was no differentiation between basic shoplifting for personal use and large-scale organized retail theft. Most agencies did not even know what ORC was.

Now that you have the industry’s attention, who are you trying to convince that ORC should be taken seriously?
Lawmakers who need to enhance the penalties for ORC because of the effect it has on the community as a whole; law enforcement and prosecutors who generalize retail crime as minor incidents and often issue notices to appear or allow diversion programs for offenders —  this procedure allows criminals to operate with a “low risk and high reward” attitude; and the retail companies that believe ORC does not exist in their organization or does not affect their company.

How have you combated this modern day criminal?
By creating a “new way” approach to rapidly respond to ORC incidents [and] working together with private sector retailers and investigative agencies to quickly identify and immediately begin the investigation process when identifying ORC incidents.

What are the greatest challenges in today’s ORC climate?
The ever-advancing technology of the Internet and the ability for anyone to run a “retail” business online. The ability to sell items on a website under the pretense of relative anonymity gives criminals a [false] sense of security … .

There are also a large number of … normally good, law-abiding people who think nothing of buying like-new items online … that are [priced] well below retail. For some reason they don’t think about, or ignore, that the items may be stolen.

What will it take to eradicate or severely cripple ORC crime?
Building partnerships across the country so that law enforcement and retailers can work together in tandem and help combat this type of crime. This type of partnership is displayed in the Polk County Organized Retail Crime Alliance. … in just over six months over 100 arrests have been made.



Special Section: Loss Prevention