Not everything is declining in the food retailing business during this recession. Sales and profits may be down, but organized retail crime (ORC) is up.
Wegmans Food Markets, for example, is seeing a 30% increase in ORC incidents this year across its 73 stores in five states, compared with an 18% jump in 2008. “For us, that's pretty significant,” said Maureen Grande, Wegmans' loss prevention regional manager for Buffalo/Syracuse, N.Y.
Wegmans is not alone. Nearly three-quarters (73%) of 115 retailers from various channels surveyed this year by the National Retail Federation, Washington, reported their level of ORC activity had risen over the past 12 months, an increase of 11% from 2008. An even higher percentage of retailers — 92% — said they had been victimized by ORC over the past year, an 8% increase from 2008.
ORC rings come in many varieties, but their essential modus operandi is to send “boosters” — usually groups of three or more — into retail stores to steal as much merchandise as possible that can be quickly sold on the street. They sometimes employ fraudulent tactics, such as using stolen or fake credit cards to buy merchandise, creating fake receipts to return shoplifted items, or substituting bar codes for less expensive items.
At Wegmans, the most frequently targeted merchandise includes a panoply of easily concealed, high-turnover items such as infant formula, razor blades, over-the-counter medicines, condoms, electric toothbrushes, Oil of Olay, batteries, DVDs, energy drinks and meat. Because these items are available at supermarkets and drug stores, “ORC is more of a problem [in those outlets] than in other retail outlets,” said Charles Miller, a loss prevention consultant and former vice president for the Food Marketing Institute who has authored a primer on ORC for the NRF.
Tough economic times offer criminals more opportunities to sell stolen merchandise “to consumers looking for bargains,” said Joe LaRocca, NRF's senior asset protection advisor. Consumers can find these bargains at such outlets as flea markets, pawn shops, street corners, small urban grocery stores and, increasingly, online marketplaces like eBay.
Shoplifting as a whole still accounts for a smaller percentage of overall shrink loss (35%) than employee theft (44%), according to the National Retail Security Survey, conducted by NRF and the University of Florida. And ORC occurrences represent a small percentage of the number of shoplifting incidents at a retailer like Wegmans, said Grande. Still, she noted, those ORC incidents add up to a “significant percentage” of the dollars lost to shoplifting.
Moreover, ORC also encompasses theft of goods from trucks (cargo theft) and warehouses. When tallied up, ORC losses are believed by sources such as NRF and the Federal Bureau of Investigation to run between $15 billion and $30 billion annually.
The ramifications of ORC go beyond the raw dollar losses suffered by retailers. For example, millions in tax revenue go uncollected when stolen retail goods are sold elsewhere in the marketplace. And the funds generated from ORC are used to support other illegal gang, drug and immigrant activities. ORC has even been linked to Middle Eastern terrorist groups, said Miller.
Another disturbing consequence of ORC is that many of the time-sensitive products pilfered from supermarkets, such as infant formula and OTC drugs, are not properly maintained by ORC gangs, posing a health threat to consumers. And then there is the brazen behavior often exhibited by boosters, who may imperil shoppers and employees as they aggressively round up merchandise and make a break for the parking lot.
There is also a sense that the ORC problem, in the urban and suburban locations where it is most visible, can spiral out of control. “We've had [ORC raids] four times in three days,” said Grande. “They come in and steal Enfamil today, tomorrow, the next day and the next day.”
RECOGNIZING THE PROBLEM
The growth of the ORC problem is finally catching the attention of law enforcement groups as well as state and federal lawmakers, who are beginning to recognize that it is more serious than garden-variety shoplifting. For example, Miller has observed a much greater involvement over the past few years by the FBI, which launched its Organized Retail Theft Task Force in 2006. “When I got started with this, the FBI was not so interested,” he said. “But now they realize how costly it is and how much tax revenue the government is losing, with some of the proceeds going to fund terrorism.”
Retailers are also finding some local law enforcement officials to be more receptive to their concerns. “We are speaking to them with other retailers and building relationships,” said Grande. Wegmans is leveraging its relationship with local law enforcement in New York, where it operates 48 of its 73 stores, to crack down on ORC rings. In about a dozen cases over the past six months, the chain has been allowed to charge repeat offenders, who had previously been charged with trespassing, with burglary in the third degree, a felony, said Grande.
Across the country, retailers and local police are forming regional task forces to facilitate the sharing of information about retail crime incidents. In Rochester, N.Y., where Wegmans is based, the chain recently met with retail groups, other retailers and local law enforcement to discuss forming such a task force; it would distribute email alerts about ORC activity among retailer and law enforcement participants and establish a password-protected website where information could be posted.
Last September, a similar group, the Law Enforcement Retailer Alliance of New England (LERANE) was formed by retail groups from New Hampshire, Massachusetts, Connecticut, Vermont, Rhode Island and Maine. “Any retailer or law enforcement [entity] that has an incident can email me the information,” said Nancy Kyle, president of the Retail Merchants Association of New Hampshire, Concord. She forwards the email to her database of more than 500 retail and law enforcement organizations.
In some instances, Kyle said, retailers have shared images of unidentified individuals taking part in ORC activity. “Within 24 hours, other retailers and law enforcement talked about their experience with those individuals, helping to identify them,” she added.
Another regional group dedicated to fighting ORC is called Florida Organized Retail Crime Enforcement; and in the Texas market, retailers like Tom Thumb and Kroger are sharing information and teaming up on stakeouts, according to a report in the Dallas Morning News.
On a national basis, NRF has been supporting the efforts of retailers, retail trade groups and law enforcement agencies to track and prevent ORC. NRF's Investigator's Network, which consists of more than 1,300 members in seven regions, allows retail loss prevention personnel and law enforcement officers to work collaboratively on major retail crimes. And NRF's Joint Organized Retail Crime Task Force, comprising a number of ORC investigators, educates the industry and law enforcement on ORC patterns and trends.
In addition, NRF, the FBI, FMI and the Retail Industry Leaders Association run a two-year-old national ORC database called the Law Enforcement Retail Partnership Network (LERPnet), which collects data on ORC incidents nationwide. Approximately 1,500 incidents are reported monthly and shared among participating retailers and law enforcement agencies. Among the food retailers acknowledging participation in LERPnet are Ahold USA, BJ's Wholesale Club, Supervalu, Target, Wal-Mart Stores and Winn-Dixie.
There is also considerable activity on the legislative front. In March, three separate pieces of ORC legislation were introduced in the U.S. House of Representatives and Senate: the Combating Organized Retail Crime Act of 2009, sponsored by Senate Majority Whip Richard J. Durbin, D-Ill.; the Organized Retail Crime Act of 2009, sponsored by Rep. Brad Ellsworth, D-Ind.; and the E-Fencing Enforcement Act of 2009, sponsored by Rep. Bobby Scott, D-Va., chairman of the House Judiciary Committee's Crime, Terrorism and Homeland Security Subcommittee.
The bills offer different approaches to combating ORC. But taken together, observed NRF in its ORC study, they would define ORC as a federal crime for the first time and toughen federal sentencing guidelines for criminals convicted of ORC; the bills would also require operators of online auction sites to cooperate with retailers and law enforcement officials in ORC investigations, and, in some cases, would hold auction sites responsible for the sale of stolen merchandise that could have been prevented.
There is greater activity at the state level as well. Last year a bill toughening penalties for ORC was passed in Ohio. In New York, retail groups are working on passage of a new ORC law that would make it possible to charge ORC rings with a felony by aggregating their crimes. But political turmoil in the New York legislature is delaying consideration of the bill until next year, Grande noted. More legislation, both state and federal, is “much needed,” she said. Until then, “we're just putting a band-aid on the problem.”
In addition to collaborating with law enforcement and each other, retailers are also doing what they can to prevent organized shoplifting in their stores. According to the NRF study, despite the downturn in the economy, surveyed retailers are spending an average of $215,000 annually in labor costs to stymie criminal gangs.
Anti-theft equipment and technology is also proving helpful. For example, Wegmans has started installing “gravity-fed” racks to hold cans of infant formula in lieu of conventional shelving. The gravity-fed racks dispense the product one can at a time with an audible click, drawing attention to those who remove many individual cans and preventing boosters from “sweeping” large quantities of formula off shelves.
Wegmans has deployed the racks in the Syracuse and Rochester, N.Y., markets over the past eight months. “They have reduced shrink for us,” said Grande.
Wegmans is using other anti-sweeping equipment, including “self-facing” shelves in most stores that use a spring-loaded mechanism to force products forward as they are removed. This system reduces the number of facings needed for display, so thieves have access to less inventory.
The chain is also testing the Invisi-Shield System, from FFR-DSI, Cleveland, with razor blades at a few new stores. This is a plastic panel that hangs over the product and slides sideways to allow only the front unit to be removed. Wegmans is also placing “inventory control” stickers bearing its name on razor blades that can't be removed without defacing the product. The stickered products deter theft because “the fences can't move them at other stores or flea markets” without being subject to arrest for possession of stolen merchandise, said Grande.
Some food retailers are experimenting with tamper-proof “keepers” or “safers” — clear plastic containers in which products are securely displayed; cashiers remove products from the keepers at the POS. A study completed in early 2008 at 10 Kroger stores in the Atlanta area showed that keepers reduced shrink levels for razor blades while increasing sales. In one test period, five test stores experienced a 0.3% shrink loss compared to a 20% shrink loss at five control stores. The study was conducted by the Loss Prevention Research Council (LPRC) at the University of Florida's Center for Retailing Research, Gainesville.
“Keepers make it hard for boosters to take as many products as they would like and to conceal them, and they are difficult to remove, yet the store is able to keep the product out in the open,” said Read Hayes, director of the LPRC. “They have a high efficacy and positive ROI.” But Miller cautioned that keepers may slow up processing at the POS.
Another study completed by the LPRC late last year looked at the impact of keepers, closed circuit TV (CCTV) domes and public view monitors at 20 test stores and 20 control stores operated by Kroger, Supervalu, Publix and Kmart. Again, the loss prevention tools reduced shrink of razor products while improving sales a little, said Hayes.
Many retailers have switched to Web-based digital CCTV systems to improve their loss prevention efforts, observed Miller. “Video today is so much better and easier to use, and the quality of the images is better.”
Last year, Wegmans upgraded its video surveillance equipment, adding digital systems throughout the chain. The digital video technology makes it easier to capture images of ORC activity and send them to law enforcement for identification, said Grande. “We've been able to build good cases.”
A&P, Montvale, N.J., has added Intellex digital CCTV equipment and digital video recorders over the past three years, said Don Terreri, A&P's senior director of asset protection. He also passes along video of boosters in action to law enforcement. A&P is in the process of putting the video systems on its company intranet, making images easier to access.
One area of the ORC issue that retailers still need to address is their relationship with the outlets used by ORC gangs to fence their stolen goods, such as flea markets and online marketplaces. “Everybody's throwing darts at each other and I'd like to see that stop,” said John Guenther, director of loss prevention, Heinen's, Warrensville Heights, Ohio, and chairman of FMI's loss prevention committee. “We need to get some kind of collaboration going.”
Two groups that have been at loggerheads recently over ORC are the NRF and eBay, the online marketplace. Many retailers believe online marketplaces give ORC gangs a faceless cover through which to “e-fence” their goods. According to NRF's ORC survey, 60% of retail respondents said they have identified or recovered stolen merchandise and/or gift cards that were being e-fenced through Internet auction sites.
But Tod Cohen, vice president and deputy general counsel for government relations for eBay, blasted the NRF report, saying it was “filled with best guesses vs. facts and hard numbers. It simply doesn't make sense to blame online marketplaces for a problem that has existed since well before the Internet was invented.”
EBay found some support from Miller, who said that e-fencing is “not as bad as some believe.” Given the vast amounts of goods that ORC rings steal, “it doesn't make sense that they would sell it a case at a time on eBay,” he said. On the other hand, the cans of infant formula posted on eBay were “likely stolen” since “nobody would buy it and put it on eBay,” Miller said.
LaRocca said NRF's beef with eBay is that it refuses to provide retailers with the names, addresses and email addresses of eBay sellers suspected of e-fencing on the site. He pointed out that eBay will share information on sellers suspected of offering counterfeit goods, but not stolen goods. Seller information would potentially enable retailers to further their own investigations and more readily recruit law enforcement. “Not until law enforcement is engaged do we see cooperation from eBay,” he said.
“We protect the privacy of buyers and sellers on eBay,” said Paul Jones, an eBay spokesman. “We can't give their information to retailers because of privacy concerns. But we will provide data in any investigation being conducted by law enforcement.”
While he understood eBay's privacy concerns, Guenther said “a little vetting of sellers [by eBay] would be proper.”
EBay is open to dialogue with retailers, and to that end has started a program called PROACT, Jones said. “But with some, especially the NRF, there has been no openness to dialogue.”
LaRocca said that a partnership with eBay through PROACT is a good idea, “but other than someone answering the phone at eBay, we've seen no benefit to the program. That's why we're pushing for federal legislation.”