“organized retail crime survey,” nrf, 2013

325 7th Street, NW

Suite 1100

2013 Organized Retail Crime Survey

www.lpinformation.com/organizedretailcrime

NRF 2013 Organized Retail Crime Survey

2

About the Survey

The National Retail Federation’s Organized Retail Crime survey serves as a tool

to bring awareness to a pervasive crime occurring in cities across the country.

The survey serves to educate all levels of retail, law enforcement, public policy

makers and the media. Completed by 77 retail loss prevention executives

representing department/big box stores, discount, drug, grocery, restaurant and

specialty retailers, this is NRF's ninth annual survey and was conducted from

May 6-21, 2013. www.lpinformation.com/organized-retail-crime

About the National Retail Federation

As the world’s largest retail trade association and the voice of retail worldwide,

NRF represents retailers of all types and sizes, including chain restaurants and

industry partners, from the United States and more than 45 countries abroad.

Retailers operate more than 3.6 million U.S. establishments that support one in

four U.S. jobs – 42 million working Americans. Contributing $2.5 trillion to

annual GDP, retail is a daily barometer for the nation’s economy. NRF’s This is

Retail campaign highlights the industry’s opportunities for life-long careers, how

retailers strengthen communities at home and abroad, and the critical role that

retail plays in driving innovation. www.nrf.com

Media and General Inquiries:

Kathy Grannis Lpinformation.com

Sr. Director, Media Relations, NRF [email protected]

202-626-8189, [email protected]

http://www.nrf.com

www.lpinformation.com/organized-retail-crime 3

About the Survey/NRF 2

Summary of findings 4-5

Definition: ORC 6

Methods of operation 6-7

Gift card/store credit merchandise fraud 8

Top cities for ORC activity 9

Impact of cargo theft 10

Law enforcement awareness 10

Highly targeted items 11

Violence growing among apprehended criminals 12

Advocacy and state ORC laws 13

Conclusion 14

Contents


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Summary of Findings

Concerns over store merchandise credit and gift card

fraud schemes are growing. This year’s report will focus

on a troubling new problem involving gift card and store

merchandise credit fraud.

Criminals continue to show aggression and resort to

violence when apprehended, endangering staff and

customers. Retailers surveyed this year report that nearly

two in five (18.3%) apprehensions lead to some level of

violence, such as verbal or physical assault. This is a

significant increase from the 13 percent reported last

year.

Nine in 10 retailers still being victimized by organized retail crime gangs. Almost 10 years

since the start of NRF’s first survey, 94 percent of retailers still say they have been a victim of

ORC in the past year. Though trends over the past nine years show fluctuations in activity

levels, it’s clear retailers are still very affected by organized retail crime. Additionally, 81.3

percent of those surveyed say that in general ORC activity is increasing in the U.S.

Law enforcement awareness of ORC is on the rise, highest ever. Nearly half of those who took

part in this year’s survey say they believe law enforcement understands the problems associated

with ORC. This is important for retailers and communities as the industry continues to try to

combat this troubling issue and protect innocent consumers who could end up in harms way.

Cargo theft activity is growing. Almost half of survey respondents said they have been a victim

of cargo theft in the past year. Cargo theft impacts every moving part of the supply chain and

costs retailers billions of dollars.

Seven in 10 retailers

report that they have

experienced boosters

stealing merchandise

and returning it for

store credit, who then in

-turn use second party

groups to get cash for

the merchandise credit.


Organized retail crime incidents increasingly linked to “gateway crimes.” According to the

survey, retailers say on average 45 percent of those apprehended are involved in these other

crimes, including the use or sale of drugs, illegal weapons and more.

Advocating for Change. NRF has been educating retailers, law enforcement, media outlets and

policy makers on organized retail crime since early 2005. Utilizing a model legislation package

NRF published in 2006, numerous states have engaged on the issue through state legislation, but

some states continue to face hurdles when advocating for state-wide legislation. Retailers and

the National Retail Federation continue to lobby Congress to coordinate law enforcement

partners, enhance existing legislation, and crack down on criminal enterprises through more

effective prosecution and tougher sentencing guidelines.

Working with law enforcement, growing partnerships. Retailers continue to work tirelessly to

grow unique and supportive partnerships with law enforcement agencies across the country.

Developing a comprehensive approach to building partnerships with law enforcement is a major

component of fighting organized retail crime. There is currently technology allowing retailers to

share incidents, which is more important than ever as criminals mobilize, crossing jurisdictions

daily to commit multiple thefts from multiple retailers.

Top cities for organized retail crime similar to last year. Chicago, Los Angeles, New York,

Miami and a few others still rank in the top 10 cities for organized retail crime activity.

Sophisticated criminals are using federal highways to transport stolen goods, which merits the

involvement of federal agencies who track and monitor this problem while partnering with

retailers to apprehend criminal gangs.

Online anonymity pushes e-fencing as a preferred method for organized retail crime gangs.

Six in 10 retailers surveyed this year say they have seen an increase in e-fencing activity in the

past year, up significantly from 49 percent last year. Online auction sites and other third party

selling sites have given criminals the anonymity that fencing locations often don't offer.


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Definition: Organized Retail Crime

Organized retail crime is defined as theft/fraudulent activity conducted with the intent to convert

illegally obtained merchandise, cargo, cash, or cash equivalent into financial gain (no personal

use), typically through online or offline sales. Organized retail crime typically involves a

criminal enterprise that organizes large-scale thefts from a number of retail stores and employs a

fencing operation to sell the illegally-obtained goods for financial gain. It should be

distinguished from “shoplifting,” which is typically a theft by a single individual of a small

number of goods for personal use.

Methods of Operation

Groups, gangs and sometimes individuals are engaged in illegally obtaining retail merchandise

of substantial quantities through both theft and fraud as part of a criminal enterprise. These

crime rings generally consist of “boosters” – who methodically steal merchandise from retail

stores or trailers (cargo theft) – and fence operators who convert the merchandise to cash or

drugs as part of the criminal enterprise. Sophisticated criminals have even found ways to switch

UPC bar codes on merchandise so they ring up at lower prices during checkout as a new way of

“ticket switching.” Others use stolen or cloned credit cards to obtain merchandise, tamper with

retail equipment such as pin-pads or produce fictitious receipts to return stolen products back to

retail stores.

Organized retail crime rings are clever, using designated roles such as driver, lookout, picker,

packers and supervisor. They use hand signals, cell phones, GPS devices, online information to

develop and transmit merchandise target “lists,” and have “tools of the trade,” which include foil

-lined shopping bags, purses, boxes and signal jammers to defeat inventory control tags. Some

use computers to replicate fake receipts for the purpose of making cash returns, while others will

use fake and/or fraudulent credit cards or checks to purchase gift cards and other expensive

goods. In some cases, employees are recruited to look the other way or provide details about

camera or security systems.

On average, retailers say 11 percent of apprehended shoplifters are found with foil-lined bags,

commonly called “booster bags,” used to defeat electronic article surveillance tags.


Nearly all retailers say they are victims of organized retail

crime

Nine in 10 (93.5%) retailers this year reported they had been victims of ORC in the past year,

down slightly from 96.0 percent last year, though for three years in a row more than 90 percent

of retailers have said they’ve been victims of crime gangs. One reason for this could be that

criminals have begun to broaden their tactics to be less obvious than removing armfuls of items

from a store, to simply finding parties to buy the store merchandise credit received from

returning stolen merchandise.

Organized Retail Crime Criminals Often Engaged in Other, or “Gateway Crimes”

Many in the industry and even law enforcement emphasize that organized retail crime in recent

years has become increasingly a “gateway crime.”

Gateway crimes are crimes that prelude bigger crimes. Members of ORC gangs are frequently

found to be linked to street gangs, engaged in the sale of illegal substances, drugs, or weapons, as

well as involved in illegal immigration issues, money laundering, and even terrorist financing. On

average, retailers believe that 44.8 percent of organized retail criminals that are apprehended are

involved in gateway crimes and 46.2 percent of offenders are engaged in drug activity, either

through personal use, dealing or trafficking.

eFencing Activity Increases

Physical fence operations - locations that criminals use to sell

their stolen merchandise, such as flea markets, pawn shops,

fictitious and temporary store locations, and eFencing

operations—the process of selling stolen goods online

anonymously, continue to pose threats to many retailers.

According to the survey, more than two-thirds (69.4%) of

retailers say they have identified stolen merchandise or gift

cards at physical fence locations. Additionally, seven in 10

(72.2%) say they have identified stolen items for sale online.

.

61.1%

Percent of retailers who

have seen an increase

in eFencing activity in

past year, up from

49.2% last year.


8

Stolen Goods Lead to Store Credit Scams

For the first time, NRF asked loss prevention executives about their level of knowledge or

experience with boosters who return stolen merchandise to receive store credit, only to sell the

credit/gift cards for cash. The news is troubling: 77.8 percent of companies replied they have

experienced gift card or store merchandise credit fraud. This is a prime example of

sophisticated criminals in action. Boosters steal merchandise or take items from the shelf, then

return it to customer service for merchandise credit. Once they receive that credit, they sell their

store merchandise gift card for cash to secondary markets, such as pawn shops, check cashing

locations and online sites, as well as kiosks.

This issue not only puts retailers at a loss, but potentially involves unknowing and innocent

consumers when they unintentionally purchase gift cards or store merchandise credit cards from

websites for a

discounted

value of the

value of the

card. Some of

those cards

were never

purchased to

begin with -

they were

obtained

through illegal

activity.


Cities Most Affected by Organized Retail Crime

For the fourth year, retailers were asked which cities rank the highest for organized retail crime

activity. Six of the metropolitan areas have appeared on this list for four consecutive years:

Chicago, Dallas, Houston, Los Angeles, Miami and New York.

While these top

10 cities/

metropolitan

areas are widely

known as being

heavily affected

by organized

retail crime, new

cities have been

known to emerge

in the past few years. As a multi-state enterprise,

organized retail crime groups rely on large, national

roadways to target retailers in various states and to

transport their stolen goods.

Top 10 Cities for

ORC Activity

Los Angeles

New York

Chicago

Miami

Atlanta

Dallas

Northern New Jersey

Houston

San Francisco/Oakland

Baltimore


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Impact of Cargo Theft

Cargo theft is another troubling component of organized retail crime. Nearly half of those who

responded this year (47.9%) say they have been a victim of cargo theft in the past year. More

than half of those who have been victimized by cargo theft say it occurred en route from the

manufacturer to distribution center (57.1%) and en route from distribution center to store

(57.1%), though some companies say it even happens between stores when moving products

through other local supply lines (22.9%). Two in 10 (20.0%) report that they notice cargo theft

incidents at the distribution center; slightly less than 10 percent (8.6%) of retailers say theft

happens at the store.

The shift in where the losses occur is fairly significant this year. Theft that occurs between the

manufacturer and distribution center jumped 13.6 percentage points, and jumped 15.7

percentage points in the store-to-store loss reports.

For the average person, these statistics should serve as a reminder that retail crime affects them,

too. These crimes not only affect a retailer’s bottom line, but also affects what consumers end up

seeing on the shelves at the store and the amount of inventory available at any given time.

Law Enforcement Awareness At All-Time High

Eight in 10 retailers this year said that they believe ORC activity has increased in some fashion

in the past three years. As such, law enforcement’s understanding of organized retail crime

continues to be a crucial component in the fight against ORC. In recent years, retailers have

worked tirelessly to educate federal, state and local law enforcement agencies about the severity

of this issue. Nearly half (48.1%) of retailers this year say that law enforcement has an improved

understanding of the issue, up from 40.0 percent last year.

Survey respondents noted that their senior management has a good grasp of the issue, which is

important for securing budgets and allocating resources needed to fight fraud and organized

crime in their stores. While many retailers have specific teams designated to fight this issue,

other retailers must rely on their trained loss prevention staff and senior LP executives to keep

their keen eye on national trends and incident patterns.


Highly Targeted Items

The most popular items targeted by these groups

are goods in high demand that criminals can sell

for near-retail price. In general, groups target

department and specialty stores specifically for

items like designer clothing, handbags, lingerie

and accessories. Those targeting grocery and drug

stores quickly grab infant formula, over-the-

counter medication, razor blades and other high-

end health and beauty products. At electronics and

general merchandise locations, criminals target

everything from batteries to the latest gadgets, like

smartphones, tablets, cameras and audio devices.

Impact on Consumers

One of the biggest problems with organized retail

crime and the gangs that operate throughout the

country actually exists beneath the surface: the

impact on innocent consumers. When budget-

seeking consumers shop for discounted items

online through auction sites or other third party

sites, they sometimes unknowingly buy stolen

merchandise. This also happens at some physical

store locations like pawn shops and flea markets.

From infant formula to pain relievers, razors and

even energy drinks, the internet is often a direct

source for consumers looking to save a few bucks

on typically expensive items. Unfortunately,

shoppers can unknowingly put themselves and

their families at serious risk of ingesting and using spoiled, expired and unsafe merchandise, as

criminals disregard health codes or safety warnings related to proper storage of certain items.

Most Commonly Sought After Retail

Items by ORC Gangs

Grocery

Cigarettes Energy drinks High-end liquor

Infant formula

Over-the-counter medicine

Allergy medicine Diabetic testing strips Pain relievers Weight loss pills Home High-end vacuums High-end appliances, mixers Laundry detergent Children’s electronic toys Health and beauty Teeth whitening strips Pregnancy tests Razors Clothing Denim pants Designer clothing/handbags Electronics GPS devices Laptops/tablets Cameras/recorders Cell phones


12

Violence Growing During Apprehensions

With a full two-thirds

(66.2%) of retailers

saying they’ve seen an

increase in organized

retail crime over the

past year, stopping

these criminals in their

tracks has become more

of a concerted effort

than ever before.

Sophisticated

technology,

partnerships with law

enforcement and

training for loss

prevention

professionals have

contributed to the awareness of the growing problem, but unfortunately criminals are still

breaking through the system.

Also noteworthy is that more companies this year replied that the level of violence has grown in

the past three years, both on the intimidation of sales associates and those who attempt to

apprehend boosters. According to the survey, approximately two in 10 (18.3%) apprehensions

now lead to some level of violence, such as verbal or physical assault and/or battery, up from

15.2 percent last year and 13.0 percent the year prior. With employee and customer safety of

utmost importance, retailers are training store associates and on-site personnel to handle ORC

suspicions in a very different way.


Partnerships & Advocacy

For years, retailers and other vested parties have worked together to tackle organized retail crime

both with industry partnerships and through state legislation as well as pending Federal

legislation. As of today, 28 states have passed and/or enacted organized retail crime or ORC-

related legislation.

Lobbying for Federal legislation. NRF

strongly believes that organized retail crime

must be addressed through Federal

legislation. By amending the Federal

Criminal Code to effectively address the

organized and serious nature of this issue,

and be properly defined as a Federal crime

with appropriate sentencing guidelines,

retailers believe we could see a tremendous

dent in the criminal activity in the U.S.

Since 2005, NRF and its various

committees have been on the forefront of

educating retailers, law enforcement,

legislators, the business community and

consumers on the vast impact of organized

retail crime. As evidenced by the top 10

metropolitan areas most affected, there is

still reason to believe the issue is a national

problem for retailers and law enforcement

agencies.

Current States With ORC or

ORC-related Legislation

Arizona

Colorado

Connecticut

Delaware

Georgia

Illinois

Kentucky

Louisiana

Maryland

Michigan

Minnesota

Nebraska

New Hampshire

Nevada

New Jersey

Ohio

Pennsylvania

Rhode Island

Tennessee

Texas

Utah

Virginia

Washington


14

Conclusion

Retailers’ level of awareness regarding the problems that organized retail crime creates for their

business has never been higher. With reports of violent, brazen and aggressive criminal behavior

increasing each year, retailers remain on full alert.

Organized retail crime is a serious issue for large and small retailers nationwide, as evidenced in

the 93.5 percent of retailers who say they have been victimized by organized crime gangs. And,

fighting the problem takes more than a keen eye and support from law enforcement. Operational

strategies must be put in place, employee training must be consistent and local and federal law

enforcement agencies must be looped in when a pattern is determined.

And unfortunately, there is no simple solution. Securing merchandise and installing deterrent

devices can be known to reduce sales and even frustrate shoppers.

In limited cases, retailers are forced to resort to increasing prices on their merchandise to

make up for what they lose to thoughtless, selfish and unconscionable criminals.

Financial impact of ORC on

retailers and consumers:

To make up for lost revenue due to

ORC, retailers’ expenditures

against retail theft have become

part of construction budgets, mer-

chandising budgets and informa-

tion technology and staffing budg-

ets.

The monetary losses retailers suf-

fer each year to organized retail

crime could easily go to new in-

ventory, more employees, remod-

eled store fronts, sales and promo-

tions for their shoppers, new store

locations and most importantly,

more convenience and lower

prices for consumers.

325 7th Street, NW

Suite 1100

“organized retail crime survey,” nrf, 2013

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