Loss prevention has traditionally focused on shortage reduction through an emphasis on internal theft, external shoplifting, and operational controls. Resources to prevent these losses have been spent on developing programs and controls to stop loss from within the company.

More recently retailers have identified the growing threat of organized retail theft (ORT). Loss prevention departments are beginning to shift resources in order to investigate and resolve these more complex cases that are causing a large percentage of their overall external theft shortage. Loss prevention professionals currently responsible to investigate and resolve cases of organized retail theft have realized the difficulty in investigating groups of criminals who operate by boosting merchandise from multiple retailers.

ORT investigators rely on incidents that occur at their specific retailer in order to gather necessary evidence to present to law enforcement for resolution. Investigators may believe that a group has stopped their boosting activity and a case may become cold without progressing because they have not been seen in that particular retailer. In reality, these criminals are boosting merchandise at many retailers, which make them difficult to track and apprehend. A more effective way to attack this increasing theft trend is to bring together retailers and law enforcement resources in order to share theft trends and case details.

Today’s reality is that these organized criminals boost merchandise from any retailer who sells product that can be easily resold to a fencing operation. While flea markets, pawn shops, and make-shift stores have provided a common place for the traditional booster of the past, Internet sales, or e-fencing, now allows an anonymous worldwide sales outlet.

E-fencing is now a national outlet for the increasingly sophisticated organized retail theft rings. Because of the easy ability to resell boosted merchandise, boosters commonly work with lists that include everything from electronics to baby formula and low-end apparel to high-end designer clothing. It is common to find a wide array of merchandise in their vehicles or in homes for resell.

Organized criminals commit crimes at all retailers, and for that reason, companies can...and should...work together in order to connect the dots for case identification and resolution. Working together to combine evidence and investigative resources will produce more rapid case closure, increased criminal charges, restitution, and extended sentencing, all of which are needed in order to reduce shortage and take these people out of circulation.

It is important to note that there are retailers who have realized the benefits of sharing intelligence and working together tactically in order to more efficiently track and take down these organized retail theft rings. These retailers have been successful in reducing their companies’ losses due to an understanding and support of cross-retail investigations sharing in order to cripple the ORT enterprise.

Shortage Impact

Many retailers report that operational losses account for over 50 percent of their shortage while internal and external theft combined accounts for the remaining 50 percent of loss. Based on increases in organized retail theft cases investigated by retailers, the FBI, and other theft task forces, it is believed that this is an increasing criminal enterprise.

The National Retail Security Survey reports that there has been a slight shift in external theft percentage points compared to the year previous where it currently sits at 34 percent. According to a survey by the NRF in May 2005, organized retail theft has been identified across the retail industry as 78 percent of the respondents to the survey reported being victimized by professional shoplifters during the previous twelve months. In the same survey, over 46 percent of retailers surveyed believe organized retail theft increased during the previous twelve months. Additionally, The FBI estimates that losses incurred due to the ORT enterprise is between $15 and $30 billion per year.

ORT activity has been reported across all sectors of retail nationwide. In many closed cases, boosters were found to have been hitting multiple retailers for different types of product lines depending on what was hot for resale to traditional fence locations and e-fence locations.

Organized retail theft is making a significant negative impact on shortage results. Retailers realizing the magnitude of the problem impacting their bottom line are responding by creating departments within the LP pyramid in order to specifically identify and eliminate these theft rings.

Economic and Community Impact

Organized retail theft losses contribute more negative impact than just company profits. Retailers pass losses to consumers in the form of higher prices. Companies must make their product pricing decisions based on many factors. One such factor is projected overall loss the company will incur over the year and what appropriate price will recover those lost profits. An increase in cost to the consumer is the most likely answer to recover those losses.

In addition to increased prices, ORT rings make desirable products unavailable to honest consumers. When these theft rings boost large quantities of merchandise from a store, the honest consumer is left with no option to purchase the product, thus impacting their shopping experience and negatively impacting sales for the retailer. In many cases, the impacted retailer has no idea that the merchandise was stolen and replenishment does not arrive until a cycle inventory is completed later that year. Thus, every time a customer returns to attempt to purchase a particular product, the store will not have it in stock as the inventory system believes that it is still in the store when in fact it is being sold through a fence location instead.

Another negative impact of organized retail theft is that state governments lose out on needed sales tax revenues. When fewer products are sold through retailers who legitimately report and pay taxes, less money is contributed to fund government activity to improve our communities. When ORT rings use refund fraud as their mode of operation, this decrease in taxes is doubled. When merchandise is returned to a store fraudulently, not only do local, state, and government programs lose out from the taxes that would have been collected on the original sale, but they also lose a second time because that return pulls sales revenue from the store. This decrease in tax revenue paid to the government decreases funds for community programs.

Criminal Benefits

Currently the benefits for criminals to commit organized retail theft far outweigh the negatives. The financial benefits for being involved in ORT at this time are too great for criminals to ignore. Individual boosters report profits of over $100,000 a year in providing fence operators with merchandise for resell.

When these boosters are caught in a store for shoplifting, they will generally only have small amounts of product on them and will more than likely be charged with a misdemeanor shoplift for that one incident of theft. What is often overlooked by law enforcement and even some LP investigators is that in many cases the shoplift incident where the arrest occurred may have been the fifth or sixth location that the booster committed a theft that day. The rest of the merchandise may be sitting in their vehicle in the parking lot.

If the correct questions are not asked by LP professionals or responding law enforcement officers, or if a vehicle is not searched, then the scope of the activity will not be uncovered. In the case where a booster is only charged for theft from one location, the penalties are minor and little or no jail time will be served.

If an investigation does lead to the arrest of an ORT ring and those individuals are charged for the full amount of loss they were responsible for at that one particular retailer, the group will see slightly more jail time, but still insignificant punishment.

However, if a joint investigation by multiple retailers leads to the arrest of an ORT ring in which a much larger dollar loss is proven and multiple counts of theft are charged affecting multiple retailers, then punishment can increase significantly. This will lead to the temporary elimination of the theft ring. Taking these groups out of circulation keeps needed merchandise in the store for sale to legitimate customers. However, once the individuals are released, they may return to target different retailers or products that were not part of the original investigation and prosecution.

Because this opportunity is well known by those in retail responsible for combating ORT, an Organized Retail Theft Coalition made up of the National Retail Federation, Food Marketing Institute, and other trade groups has been established.

Additionally, federal legislation has been proposed to fund training for law enforcement, to support a national retail theft database, to request additional support for fighting and prosecuting related crimes, and to increase penalties for those convicted of organized retail theft activity.

Case Example

          A recent investigation led by the Mervyns Special Investigations Unit (SIU) identified an organized retail theft ring that impacted multiple retailers simultaneously.

Mervyns has seen a consistent trend in Levi’s shortage over the previous five years. Little impact was made when developing operational controls and store-level security measures. An analysis of Levi’s shortage throughout Mervyns was conducted by the newly developed Special Investigations Unit. A Levi’s Inventory Count Update Report was created in order to identify stores adjusting counts due to missing product within their stores. The report identified large Levi’s shortages within multiple markets.

Surveillance conducted on Levi’s product within selected stores by the Special Investigations Unit uncovered multiple booster groups removing large quantities of Levis from numerous store locations. The booster groups worked in the following manner.

A booster subject would select multiple pairs of Levi’s while a lookout watched for camera movement and loss prevention personnel. If there was no noticeable camera movement or LP identified, then the booster would conceal Levi’s within the fitting room utilizing booster socks to conceal the merchandise under their pants.

Additionally, booster bags with foil lining were used at some locations. Cell phones were used to communicate throughout the store and both subjects would be met by a third party waiting in a vehicle outside.

Photo alert bulletins were sent out to all Mervyns’ loss prevention personnel. This generated response that investigations had been opened on similar groups with the same mode of operation throughout the states of Washington, Oregon, California, and Arizona by individual stores who had witnessed similar activity. Further investigation identified multiple booster cells working different geographical locations.

The Special Investigations Unit conducted mobile surveillance on the subjects and identified multiple retailers were victimized by the thieves with boosted product ranging from Levi’s to high-end merchandise.

The lead investigator on the case for Mervyns sent photo alert bulletins to all nearby retailers potentially impacted by the thefts. This resulted in multiple booster arrests and the identification of a total of fourteen South American booster subjects using fake Puerto Rican IDs and multiple identities in order to mislead authorities. Most of the subjects had been arrested multiple times using different identities, which allowed them to be cited and released from responding law enforcement agencies if arrested.

Multiple retailers participated in the identification and sharing of information in this case, including Sears, Kohl’s, JCPenney, Robinson May, Macy’s, and Levi Strauss & Co. With the information sharing of all participating retailers and with the evidence gathered by the Mervyns SIU team, it was confirmed that this ORT ring had been aggressively active since 2001.

One arrested booster gave investigators information on the main fence operation operating as a retail business in Los Angeles inside the garment district. Further mobile and stationary surveillance on the fence location revealed the already identified boosters exchanging large amounts of stolen merchandise for cash.

With the assistance of the FBI Interstate Theft Task Force, search warrants were executed on three separate locations in the Los Angeles area, which resulted in the recovery of 3,865 pairs of Levi’s totaling $177,790. Additionally, several duffel bags full of stolen high-end merchandise belonging to other retailers were also recovered.

During the course of the search warrant, thousands of dollars worth of brand-name merchandise from multiple retailers was found in back storage rooms. Unfortunately, no proof of thefts from these retailers was available in order to seize this merchandise.

Intelligence on additional boosters and fencing locations was also obtained during the search warrants. Based on the evidence uncovered throughout the course of the investigation and information provided by boosters and informants, it is estimated that Mervyns alone had incurred a loss of $1 million dollars for every year the ORT ring was in operation. The total shortage impact to all retailers that were victims of this theft ring is unknown at this time.

Connecting Retailers and Law Enforcement

          Law enforcement has a wide variety of task forces or special departments that investigate property theft cases depending on location and governing body. In many cases law enforcement resources are utilized by retailers only after a case has been put together and the majority of the needed evidence to prosecute has been obtained. As a result, retailers can provide assistance to one another by becoming involved in cross-retail investigations sharing. This will allow for cases to be put together more quickly when multiple retailers are involved in a case.

Oftentimes different pieces of evidence needed to complete an investigation can be found across different retail case files waiting for someone to connect the dots. Additionally, having joint retail documentation and evidence adds credibility to cases for prosecution. It allows for a strong case presentation to a law enforcement agency that will be able to assist in the final stages of the case being closed.

A company’s policies on information sharing must always be considered in relation to case details. However, general case information such as the mode of operation, subject descriptions, and pictures should be considered by retailers when attempting to identify and locate theft rings that are causing a company large amounts of loss.

There are very good resources available for cross-retail investigations sharing. Many counties and states across the country have organizations that meet monthly or quarterly where law enforcement and retailers get together to discuss thefts and criminal trends. These “crime stoppers” or “property theft” associations are beneficial places to educate law enforcement and share case details in order to solicit support for cases by both law enforcement and other retailers in attendance.

There is also the National Retail Federation (NRF) Investigators Network that meets specifically to discuss current investigations and trends across the nation from all retailers. The NRF Investigators Network consists of over 500 loss prevention professionals nationwide with meetings in every region of the country. Federal, state, and local law enforcement professionals are in attendance at these meetings on a regular basis. Additionally, trainers from Wicklander-Zulawski have attended some meetings in order to teach the interrogation of organized retail theft suspects in the field. This is an excellent way to meet other investigators while sharing case information for case development.

Two new resources for sharing information are just coming available to retailers [see sidebar “Retail Theft Databases” on page 52]. One is the Retail Loss Prevention Intelligence Network (RLPIN) developed by the NRF. The second is call InfoShare and is offered through the Retail Industry Leaders Association. Both databases allow retail members to input incident data for their company that can be shared with other members.

In addition to the above suggestions, the easiest way to work together is by simply picking up the phone and talking to other LP professionals. Sharing information via email in an alert bulletin that can be passed along to investigators in the field is also a great way to work together. This allows for a quick and easy way to get information out to those responsible for investigating this type of activity within their company. It also increases the probability that your subject will be seen by other investigators and evidence can be obtained in order to bring your case to resolution.

Retailers are identifying and appropriately responding to this growing threat of organized retail theft. There is a great opportunity to work together in order to connect suspects and evidence across multiple retailers for a more in-depth and complete investigation that is necessary to put these criminals out of business. Connecting retailers is the most effective way to combat organized retail theft and reduce the shortage impact from this theft enterprise.

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MATT LINCOLN is currently the manager of the Special Investigations Unit for Mervyns stores. He has twelve years of retail loss prevention experience with both Target and Mervyns stores. Lincoln has a degree in criminal justice from Saint Leo University, Florida, and is currently an MBA student at Regis University in Denver, Colorado. He can be reached at 510-727-3727 or by email at matt.lincoln@mervyns.com.

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Retail Theft Databases

By Susan Shackelford

Rhett Asher remembers the routine. When he was in retail management for nearly two decades and a theft occurred, store personnel would make a couple of calls and fill a report. “Typically, we would call the home office and the police,” Asher recalls, “and then type up a report and send it to the home office. Who knows where it went. We had no way of knowing whether the crime was a geographic trend or product trend.”

Those days are over. Today, a handful of national retail databases are being developed to help companies and law enforcement track theft trends. The significance of organized retail theft (ORT), also known as organized retail crime, has risen to such a significant level that retailers are overcoming an understandable competitive bias toward not disclosing theft data. Such crime accounts for as much as $30 billion annually, according to an FBI estimate noted in The New York Times in late 2005.

Several trends helped birth the national databases, says Asher, now vice president of retail operations and loss prevention for the Retail Industry Leaders Association (RILA). “Retailers started to recognize repeat offenders in large thefts,” he says. “They also started to get a better understanding of the Internet, which opened up a virtual flea market for criminals. They also started to get smarter people in loss prevention positions within their companies. They could see the trends and the enormity of the problem.”

Organized retail shoplifting rings capitalize on the dearth of information-sharing among companies. Until the Ghali shoplifting gang was shut down in 2003, it recruited more than one hundred shoplifters in the Dallas area, according to the Times, and stole an estimated $5 million in merchandise from Target, Wal-Mart, and Walgreens stores. Rented vans ferried the shoplifters to stores, and stolen goods were shipped using Federal Express. The Times called “a failure to share information” the biggest hole in retail security.

With this reality, RILA and the National Retail Federation (NRF) are both coming to market with databases for their members, other retailers, and law enforcement. The databases pool information on OCT and other crime- or theft-related incidents. Neither group is seeking to make a profit, and both plan to provide their systems free to law enforcement. Both systems offer email alerts that allow users to track incidents specific to geographic location, dollar loss, or other criteria.

But the systems differ on data visibility requirements and how they were developed. NRF’s Retail Loss Prevention Intelligence Network (RLPIN) system launched in late November and has signed up Sears, Macy’s, and The Limited as of mid-January. RILA’s InfoShare program, now being piloted, is expected to be released in spring 2006. Here is a look at the two systems.

RLPIN (NRF)

“Our system was the byproduct of retailers calling out for a neutral party to start a system to share information among retailers and law enforcement,” says Joe LaRocca, vice president of loss prevention for NRF, a Washington, D.C.-based association best known for representing primarily department stores and specialty retailers.

The RLPIN system interfaces with existing theft information databases at store sites, known as case-management systems. Or, users can input incident data on an RLPIN web site. The association created the system from scratch, employing ABC Virtual, based in Des Moines, Iowa, to develop it. The NRF also used input from twelve retailers, the FBI, and several law enforcement agencies that served as a steering committee. The retailers featured an industry cross-section, so the system could be fine-tuned for different sectors.

“Each retailer had input into the process,” LaRocca recounted. “We were able to determine the type of incidents and what level of info was needed, who should be managing the process, how data should be secured, reasonable fees, and where the system could go in the future.” Leading the development effort was project manager Richard Varn, former chief information officer for the state of Iowa. Varn also has worked on databases designed to share information among federal agencies.

With RLPIN, users own their own data on the system and can choose what information they want to share by field or sector. “We offer the nuance of allowing retailers to hide any information they would not like to share,” LaRocca explains. “They can even hide their name, store profile, and individual pictures. They choose what information and what level and who to share information with. They can choose not to share with any organization or only with law enforcement or only certain types of stores.”

Such flexibility addresses the varying public disclosure and security policies companies have. “Our goal in developing this was to meet any general counsel’s level for sharing information,” LaRocca says.

“Retailers are very leery about disclosing incidents about their company in the media,” he explains, noting that the more that’s said about incidents, the more likely the media will pick up on it. “They [retailers] are also very leery about putting negative or derogatory information out to other retailers for what might be competitive reasons or a brand reason. If you knew Susan’s Jewelry Store was a primary target, you the customer may not feel safe or an employee may not feel safe working there.”

Nonetheless, so far, most users are leaving the data visibility open within the sectors in which they’re participating, LaRocca says. “I think the seriousness of the crime level has prompted it. The only fields companies are hiding on a consistent basis contain witness information and detail security equipment by location. Retailers are putting some of their darkest secrets out there.”

One of RLPIN’s security features is RSA SecurID, which is in addition to regular IDs and passwords. “The system has a digital reader that ensures that only the authorized user can get access,” LaRocca notes. “And it changes the password every sixty seconds and makes it easy to turn off a password when a user leaves the system.”

With its basic service, NRF charges an annual fee of $1,200 per company to use the system. A company can have unlimited users, but there is a $200 start-up fee for each user. NRF expects to offer an advanced level of service later in 2006.

For more information about RLPIN, contact LaRocca at 202-626-8135 or via email at laroccaj@nrf.com.

InfoShare (RILA)

RILA’s system came about from a request of its Asset Protection Leaders Council, which meets several times a year to focus on loss prevention issues. The association investigated developing its own system or using an off-the-shelf product tweaked for its purpose. It chose the latter.

“We decided on one vendor [RuMe Interactive] because their platform [APIS] was being used by a majority of our companies, and it was easy to add other companies, including non-RILA members,” Asher recalls. “They offered to develop the system for little to no cost, and we bought the license to their product. We have agreements that allow us to own the data.” InfoShare users do not have to be APIS users as the system will interface with other case management systems.

RILA then put together a fourteen-company InfoShare steering committee that cut across a variety of retail sectors to drive the initiative. Historically, RILA is best known for representing big-box retailers, but it has grocery, auto parts, office supply, and drug store chains among its nearly 500 members.

In contrast to RLPIN, the InfoShare steering committee decided to make full information visibility a requirement for participating in the database. “Everybody shares equally,” Asher says. “To me, you’re blind if everybody is not sharing, and it slashes the value of the system. We had a legal process the whole way, where the retail legal people agreed on the criteria and signed off on what was being shared. We backed off categories that weren’t unanimous.”

Currently, all steering committee members are piloting the system—Big Lots, Dollar General, Family Dollar, Food Lion, Gap, Limited Brands, Lowe’s, Office Depot, Payless ShoeSource, Pep Boys, Kmart [Sears Holding Corporation], Target, Walgreens, and Wal-Mart. “We have every intention of getting through the pilot and opening up to the rest of the industry by spring 2006,” Asher says.

Also unlike RLPIN, InfoShare was not developed in conjunction with law enforcement from the beginning. “The retailers decided to build this for us first. We have the problems, we’re losing merchandise, we have customers and employees in harm’s way,” Asher says. “We would never have gotten this by legal if we’d said all the information goes to law enforcement. It opens up all kinds of liability issues. We don’t know how law enforcement would use the information publicly. Our intent is to involve law enforcement once we get through the pilot.”

The cost for InfoShare begins with a start-up fee of $2,100, which primarily covers cost of licensing and server space, Asher says. The payment can be made over ninety days. After the ninety days, a company pays a monthly maintenance fee that “will probably be a few hundred dollars,” he estimates. There will be no per-person fee to access the system, which will allow unlimited users from a company.

Even though InfoShare’s pilot won’t be finished until springtime, Asher calls the data already coming in “eye-opening.” Companies have been able to address situations that would have eluded them in the past. “There have been considerable leads from information shared,” Asher says, “which would have taken months or years to even identify without the system.”

For more information about the InfoShare system, contact Asher at 703-600-2024 or by email at rhett.asher@retail-leaders.org.

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SUSAN SHACKELFORD is a business writer based in Charlotte, North Carolina, and can be reached at SPShack@aol.com.