How stores plan to fight organized retail crime during the holidays

With Halloween over, retailers are in full-fledged holiday season mode. Which means they’re gearing up for Black Friday, holiday staff schedules, stampedes of customers… and theft. That’s right — the holiday season might bring stores a nice sales bump, but it also brings an increase in shoplifting. And retailers are stepping up efforts to crack down on the crime.

We’re not just talking about customers stealing a pack gum in the checkout line. Loss prevention specialists have their eyes on a much bigger target.

Organized retail crime (ORC) is a strategic and highly sophisticated brand of shoplifting where a network of professional thieves work together to rip off retailers. According to a survey from the National Retail Federation (NRF), organized retail crime is on the rise, with 100% of retailers saying they have been a victim in the past 12 months. Furthermore, 83% said ORC activity had increased in the past year.

“There are existing crime organizations, like drug dealers, and these groups looked at the retail world and saw it was very lucrative to steal heavy volumes of merchandise and then sell it,” said Robert Moraca, vice president of loss prevention at the National Retail Federation. “The access to selling online has made it even easier.”

Along with organized retail crime, standard shoplifting and employee theft costs retailers approximately $42.5 billion in 2015.

Types of organized retail crime

When it comes targeted items, the NRF the majority of ORC thefts involve designer clothes. High-priced handbags, baby formula, detergent, allergy medicine and razors are also items that thieves snag and resell. While a large amount of illegal sales happen on online auctions and classifieds, thieves also attempt to sell goods at swap meets, pawn shops and on the streets. However, data shows that all three of these avenues have declined since 2011. Instead, Moraca says these operations have gotten increasingly refined, with thieves storing stolen merchandise in warehouses before shipping large quantities abroad.

“We realized that thieves were taking stolen smartphones down to South America where they can get three or four times the money,” Moraca told Yahoo Finance. “They have networks, supply chains, it’s amazing.”

For those thieves who don’t have the network to ship items aboard, gift cards have become a popular tool to get money from lifted merchandise. After stealing items from a retailer, the organized retail crime organization has someone return the stolen merchandise for store credit. This usually comes in the form of a gift card. That gift card is then sold on a site like Gift Card Granny, where users can sell their gift cards for up to 92% cash back. For an even easier payday, thieves just have to find a Coinstar. These machines, usually at grocery stores, are used by people to exchange large buckets of coins for cash. Today many of Coinstar machines also allow you to exchange gift cards for cash, making it even easier for criminals cash out. Nearly 68% of retailers report that stolen merchandise being returned for a gift card is an issue at their stores.

Retailers react

Retailers are getting creative in their methods to combat theft, and they’re working with law enforcement on the local and national level to take down illicit networks.

Target (TGT) wouldn’t share specific anti-theft strategies (they don’t want to compromise effectiveness), but they did tell Yahoo Finance they are committed to security. “We take a multi-layered, comprehensive approach to preventing theft that includes innovative programs and partnerships with local law enforcement, technology and team member training,” said a spokesperson.

Technology has also played a major role in how retailers respond to this kind of crime. Today, most retailers have installed closed circuit TV systems to capture what’s happening on the floor and stop crime as it happens. The introduction of device analytics has taken this surveillance to the next level, giving retailers the ability to track individual customers throughout the store. “It overlays the system and tracks people throughout the store with color codes, so if a person lingers too long in a certain area, a loss prevention agent on the floor will be notified of their location,” said Moraca. “It looks for things out of the ordinary and has been very effective.”

A Wal-Mart associate checks receipts at the door.
A Wal-Mart associate checks receipts at the door.

The final tool retailers are using is good old customer service. In June 2015, Walmart (WMT) reported it was having a problem with theft, which was costing the company nearly $300 million a year. To improve the situation, the retail giant unveiled its “More at the door” program in May 2016, which reintroduced sales associates to greet customers, check receipts where appropriate and assist with returns.

“We know how important it is to maintain a safe and secure environment for our customers and associates, and we continually evaluate our safety measures throughout the year,” Erica Jones, a Walmart spokesperson, told Yahoo Finance.

According to Moraca, something as simple as a greeter at the door can have a huge impact on loss prevention. “If you go into a store with ill intent and the sales associate helps you, then you know they have seen your face and are alert,” he says. “Good customer service techniques are good loss prevention techniques.”

Impact on customers

When talking about how theft impacts customers, “shrink” is ultimately what most retailers are worried about. Shrink refers to the portion of inventory that gets lost or stolen, and which can dramatically affect a company’s bottom life if it isn’t kept under control.

For example, Walmart’s problem with shrink attributed to a drop in its gross profit margin in 2015. For an average retailer, shrink accounts for about 1% of their annual sales, so for a company like Walmart, that can end up being a meaningful loss.

“One percent of $300 billion is quite a lot of money. If you can save 10 basis points of it – boy I’ll take it every day of the week and put it into lower prices for customers,” Greg Foran, head of Walmart’s US operations told Reuters.

In other words, when companies keep their shrink down, at least some of that money saved can be passed onto customers in the form of lower prices.

Brittany is a writer at Yahoo Finance.

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