By Karen E. Thuermer
Retailers lose tens of billions to organized crime. Find out how they are fighting back with technology and other measures.
This year, the popular television show The Sopranos, a fictional account of a mob family, comes to an end. Unfortunately, in the real world, organized crime is not ending, it’s booming, especially in the retail environment. A 2007 National Retail Federation (NRF) organized retail crime (ORC) survey of loss prevention executives found that 79 percent of respondents said their companies were victims of ORC, and 88 percent rated the problem between important and severe. (For 2006, only 41 percent found the problem significant or severe.) Seventy-one said the problem for them is getting worse, not better.
While retail crime comes in many forms such as shoplifting, credit card fraud, and internal theft, ORC is a different beast. Unlike shoplifting, ORC involves professional thieves operating as a network of “boosters” and “fences” who steal, repackage, and resell staggering amounts of stolen goods daily.
“They can hit anywhere from eight to 15 retailers a day,” states Karl F. Langhorst, CPP, director of loss prevention for Randall’s and Tom Thumb Food Markets in Texas (a subsidiary of Safeway). “Boosters come into retail establishments with a shopping list from their fences, who in turn sell the goods for typically 20 cents on the dollar of the retailer’s cost.”
Hot on today’s “shopping list” are electronics, DVDs, CDs, razor blades, liquor, over-the-counter medicine, baby formula, health and beauty care items, and meat, among other goods.
“Typically, teams of three or more people operating with a strategy, steal hundreds of dollars of merchandise, then go onto the next store,” says Joseph J. LaRocca, NRF vice president of loss prevention. “Their victims are retailers of every kind and size, regardless of what merchandise they sell.”
ORC hits the bottom line of every possible type of retail establishment, including supermarkets, chain drug stores, independent pharmacies, mass merchandisers, convenience stores, and discount operations.
Stores collectively lose billions to shrink (ORC is part of that mix). As this issue went to press the 2006 numbers, due out in June, were not yet available. For 2005, the NRF put the industry loss at $37.5 billion. “The ultimate costs are passed onto consumers in terms of higher prices,” of course, comments LaRocca.
Cost is not the only issue. There’s also concern that these groups are funneling money to terrorists.
“The solid connection to funding terrorism is one of the major concerns right now,” states Bill Greer, spokesman for the Food Marketing Institute (FMI).
In March 2006, Detroit Free Press, for example, reported the arrest of nine members of an alleged Dearborn-based smuggling operation who were accused of taking part in a global scheme involving bootlegged cigarettes, infant formula, phony Viagra, and counterfeit tax stamps, and sending a cut of their illicit profits to Hezbollah.
In June 2005, The Christian Science Monitor reported that the FBI uncovered a retail theft gang in Texas that specialized in reselling stolen infant formula. The FBI reportedly traced the proceeds to the Middle East, where terrorist groups, such as Hamas and Hezbollah, are active. In connection with that case, Texas authorities seized some $2.7 million in stolen assets, including $1 million worth of stolen infant formula.
The terrorist connection is not new. It dates back to before 9-11. At that time, a number of grocery store chains in the Houston area were experiencing thefts of thousands of dollars a day of baby formula. When they compared notes, it became apparent that the thefts were carried out by teams of five to six women and younger men primarily from El Salvador and Honduras who were eventually identified as working specifically for Middle Eastern fences.
On the eve of 9-11, a Department of Public Safety (DPS) trooper stopped a rental truck being driven by a Middle Eastern male. It and other rental trucks stopped around that time were loaded with baby formula.
“The driver was later tagged back to one of the 9-11 highjackers,” Langhorst says. There was suspicion that the goods were being used to finance terrorism.
Getting proof was not easy, however. In each case, the truck driver purported to be a bona fide wholesaler. “As the case unfolded, we realized that it would be very hard to prove that this formula was stolen from our stores,” Langhorst recalls.
Consequently, all of the retailers that had been victimized in these instances decided to join forces and discuss the problem with the Gulf Coast Retailers Association. By doing so, the retailers eventually were able to convince the Texas Department of Health and Services to consider civil remedies against these people they knew were not licensed to sell the formula under Texas law.
“We were able to take civil action,” Langhorst says. “The Texas Department of Health basically conducted inspections, along with DPS, of known locations run by fences who were buying this formula from boosters and reselling it without a license. There were civil and eventually criminal prosecutions.”
The takeaway lesson for all retailers today, Langhorst stresses, is how critical it was for all involved retailers, law enforcement officers, and government officials to sit down together and share information.
“The fact we worked together is why we were successful in shutting down the operation,” he says. Such a coordinated effort is not practiced by enough retailers today, he asserts.
Another issue is food safety. Langhorst explains that the conditions in which fences are warehousing perishable goods (including those with an expiration date) can be dangerous—even fatal—to consumers.
“In our case, some of the baby formula was being stored in garages with rodents running across storage facilities that had no temperature control whatsoever,” he says. “Of course, Texas gets hot and that baby formula will break down in nutritional value if it is kept out of its correct temperature range,” he notes.
But fences are good at hiding their craft. As part of their operation, fences will clean, repackage, and relabel goods to make them appear as legitimate products. They will also switch labels, particularly if items are damaged or out of date.
“They think nothing of switching labels from one brand of formula to another,” Langhorst says. “They also make counterfeit labels.”
In some cases, fences may even sell the products back to the retailer, unbeknownst to them. And frequently, fences (dubbed e-fences) will sell the products via Internet Web sites, such as eBay and craigslist. The ease with which criminals can use the Internet to sell the stolen goods now makes it more difficult to investigate these crimes.
In addition to working with law enforcement, many retailers are trying to make it harder for boosters to disguise the origin of the product. Many of them now stamp their product with their company name and logo, and a store number so that the retail source of the product can be identified if uncovered in a theft or for other purposes, such as a product recall.
“Some now use a laser process developed by MARKEM® that is the same as used for lot numbers on packages,” reports Bill Alford, president, International Lighthouse Group, a consultant based in Charlotte, North Carolina. “These cannot be cleaned or wiped off.”
Companies that are using laser codes have experienced a decrease in ORC, says Alford.
Clothing retailer The Limited Brands has a crime fighting effort that it has designated “Operation Pink,” which uses UV ink to mark its clothing items and catch culprits who are known to resell their products on eBay.
“DNA technology and special scanners will identify whose product it is,” explains Alford.
Those are just two examples of the solutions being implemented. “Such technology is only scratching the surface of what can be done,” Alford notes.
Other systems include antitheft fixtures, such as those by Alpha Security Products, Inc., and Display Specialties Inc. (DSI). These devices prevent anyone from taking more than one item at a time from the rack. Some systems require a store employee to unlock and remove the merchandise for the customer.
Other antitheft products include infrared technology and hard tags. In the case of infrared technology, an alarm is isolated to only the unit tampered with, not the entire system.
“Hard tags such as ink tags are used to counter clothing theft,” states Alford. “This doesn’t prevent theft, but the ink will stain the clothing when improperly removed, thereby making it difficult to resell,” he says.
Many retailers are using tag systems that are combined with Radio Frequency Electronic Article Surveillance (RF EAS) systems.
“EAS can be standalone units or impeded with the tags that make an alarm go off when thieves try to take stolen items through electronic sensors at exit doors,” says Alford.
Manufacturers of these systems include ADT and Checkpoint. Checkpoint has developed a Screamer Tag that emits a piercing alarm upon forcible removal from merchandise or unauthorized exit through a checkpoint RF EAS system. The activated tag will continue to scream, and its red LED will flash, until store personnel deactivate the unit.
The company has worked closely with supermarkets in loss prevention. Its customers include chains such as Albertson’s/American Stores, Continente, Winn-Dixie, Gigante, and Intermarché.
None of these solutions are perfect. “The problem with EAS systems is someone has to physically tag each item,” says Alford. “And employees have to respond to the alarm when it goes off. Consequently, there is always a training component to these systems where a trainer must train store employees and also conduct an audit to make sure items are properly tagged.”
Langhorst says that Randall’s and Tom Thumb Food Markets also uses a great many CCTVs in its stores and places cameras in high theft areas. But, he acknowledges, the cameras are not a deterrent for ORC, because, he says, “quite frankly, boosters, by and large, don’t care if they are videotaped or not.”
They do serve a purpose, however, in that the footage produced by the video cameras depicting the theft can be useful for identifying suspects for later prosecution and conviction.
The problem with much of the existing technology is that it “predominantly falls short in linking intelligence and the analysis,” states Keith Myerson, regional director of security services for Tiffany & Co., and chairman of the ASIS International Organized Retail Crime Committee, a part of the ASIS International Council on Loss Prevention.
One exception, Myerson suggests, is ChoicePoint’s i2 visual investigative analysis software, which enables investigators and analysts to quickly understand complex scenarios and volumes of seemingly unrelated data, perform analysis, and communicate the results. The software has helped forge connections that made it possible to solve cases, he says.
Staff awareness. While stores use technology, it’s also important to get staff involved in prevention. For that reason, Randall’s and Tom Thumb Food Markets stresses the importance of customer service to all of its associates. Each associate is trained to be alert to ORC so as to immediately report anything suspicious to store management who, in turn, report activity to ORC investigators. Today Randall’s and Tom Thumb Food Markets dedicates staff specifically to ORC.
“We are hiring investigators to deal with nothing but that,” Langhorst says.
Information sharing. Getting law enforcement to prosecute boosters and get convictions with jail time is a good beginning, Langhorst says, but he adds that going after the criminals in the stores is only part of the equation.
“The long-term fix is actually shutting down the fences, a very difficult thing to do that requires months and months of investigation,” he states. “Law enforcement does not have the resources to do that on their own. They require, need, and should get the assistance of retail.”
Unfortunately, until recently the effort to combat ORC was highly fragmented. In fact, according to the 2005 National Retail Security Survey, published by the University of Florida, only 37 percent of responding retailers were actively tracking ORC incidents and losses. Moreover, only 10 percent of loss prevention departments had a dedicated task force focused specifically on ORC.
Adding to the problem has been that retailers did not traditionally share data with their competitors. That has to change, says Langhorst.
“It is vital for retailers to understand that right now they need to break down the traditional barriers and…exchange information,” he says. “Otherwise, you will have a booster hitting store to store, chain to chain. If retailers are not trading information on it, they cannot get these people in jail.”
In an effort to improve information exchange, the retail industry supported a measure that President Bush signed into law in January 2006, which required the U.S. Attorney General to establish an organized retail theft task force within the FBI. The mission of the task force is to quickly identify hot spots of ORC activity across the country and deploy agents and resources more efficiently to pursue, apprehend, and prosecute ORC criminals. The law also authorized $5 million annually for law enforcement participation and training of federal agents to investigate and prosecute the crimes. Funds have not yet been appropriated, however.
Meanwhile, the Retail Industry Leaders Association (RILA) and NRF joined forces to launch just a few months ago the Law Enforcement Retail Partnership Network, or LERPnet (see sidebar).
“LERPnet is a secure, Web-based computer database that will allow retailers to share information relating to ORC, theft, and major criminal incidents with each other and with law enforcement,” states NRF’s LaRocca.
LERPnet, which is privately funded through the NRF, is endorsed by federal and state law enforcement agencies. Retail subscribers pay a setup fee, plus an annual fee of $1,200 to belong.
The goal is to have a nationwide resource and to encourage collaboration like never before. It will help detectives see patterns by researching crimes in neighboring cities, counties, and states.
This “network has huge potential,” says Myerson.
In another initiative, the ASIS International Organized Retail Crime Committee is putting together a best practices training guide for all retailers.
In addition, Randall’s Food Markets has produced a video that is being distributed to other retailers, state legislatures, and law enforcement personnel at all levels of government to educate them about the severity of OCR and what they can do about it.
“Some retailers are sophisticated in their efforts to combat the problem, while others are not even aware of its extent in their stores,” Langhorst says. “What needs to happen across the country is an extremely large education process within retail and with law enforcement. Retailers must understand the problem before they can expect law enforcement to fix it.”
Organized retail crime (ORC) is booming. Unlike shoplifting, ORC involves professional thieves operating as a network of “boosters” and “fences” who steal, repackage, and resell staggering amounts of stolen goods daily. Hot on today’s “shopping list” are electronics, DVDs, CDs, razor blades, liquor, over-the-counter medicine, baby formula, health and beauty care items, and meat, among other goods.
A 2007 National Retail Federation (NRF) organized retail crime (ORC) survey of loss prevention executives found that 79 percent of respondents said their companies have been a victim of ORC.
Stores collectively lose billions as an industry to this crime, and those costs are passed on to consumers. More troubling, there is evidence that these criminals sometimes funnel the money from their thefts to terrorist groups.
Retailers are fighting back. They are using antitheft devices as well as other technology to make it harder for boosters to hide the origin of stolen goods. They are also using software to help them spot connections in crimes.
In addition, they are getting staff involved in prevention. Randall’s and Tom Thumb Food Markets dedicates staff specifically to ORC.
Most recently, the Retail Industry Leaders Association and NRF joined forces to launch the Law Enforcement Retail Partnership Network (LERPnet), a secure, Web-based computer database that will allow retailers to share ORC information with each other and with law enforcement.
In another initiative, the ASIS International Organized Retail Crime Committee is putting together a best practices training guide for the benefit of all retailers.
Karen E. Thuermer is a freelance writer based in Alexandria, Virginia.