Law & Order SCU: Supply Chain Unit – The Rise of Organized Retail Crime

Crime may be at a historic low nation-wide, but there is one area in which it is thriving: retail. Organized retail crime (ORC) is a serious problem along the supply chain, one that has driven retailers and shippers to the end of their rope. Now those in the dual industries are advocating for help from the federal government, while trying to find new ways to protect their property and interests.

When one hears the term ‘organized crime’, it probably conjures up glamorized images of movie gangsters in fedoras and three-piece suits, firing tommy-guns or smoking cigars in dimly lit back rooms. Alas, the reality is much less romantic. ‘Organized retail crime’ is defined as any criminal activity between two or more individuals that targets retail merchandise along the supply chain. This includes theft of merchandise (both from stores as well as in-transit) and private information, manipulation of a retailer’s return policy, and product resale on the black market.

The National Retail Federation (NRF) recently released the 12th annual ORC study, and the numbers are alarming. Out of 59 senior retail loss prevention executives surveyed, 100% said their companies had experienced loss due to ORC this year. It is the first time in the survey’s history in which that number has reached 100% (up from 97% last year). This has resulted in a significant increase in revenue loss: $700,000 per $1 billion in sales, up more than $250,000 from 2015.

The sliver lining in all of this is that true scope of the damage is now, being properly recognized, with 71% of the loss prevention executives noting that company managers finally understand the severity of the problem, and have begun to treat it as a priority. Yet, for as much as awareness has risen, solutions to combat ORC have a ways to go.

The first step in that process is one of spatial awareness. If one doesn’t know who the criminals targeting them are, and where to look for them, one cannot properly protect themselves. These criminals will fence the merchandise they’ve stolen mostly along storefronts, pawn shops, street booths and kiosks, flea markets and swap meets. They may even take advantage of the return policies of the very retailers they robbed. And of course, it should come as no surprise that e-commerce along online black markets have seen a drastic rise in the last several years.

One area along the supply chain that is especially susceptible to ORC is transportation, which has been hit with a drastic increase in cargo theft in recent years, at a rate of 150%, with annual losses estimated to be in the billions. California (in particular Los Angeles) has the highest number of cargo thefts by far, although states and cities with lots of ports have been heavily targeted as well, thanks to the sheer number of merchandise that moves through them on a daily basis. Roughly 100% of merchandise is delivered to stores via trucks, making them prime targets for thieves, who will often strike when drivers leave their trailers unattended while stopping to refuel, eat, or use the restroom.

Loss prevention experts have advised drivers, shippers and retailers to take several important steps to better protect their cargo and themselves, including heavy investment in GPS tracking systems; surveillance and security equipment such as cameras, locks and alarms; and employee awareness. It is this last strategy—awareness—that is perhaps the most important. Often times these thefts will be committed by opportunistic thieves who happen upon unattended trailers, but shipments of higher-end goods, such as electronics and pharmaceuticals, find themselves at special risk of targeting. Many times, these shipments will be staked out all throughout the supply chain by more advanced criminal units.

The main responsibility when it comes to protecting against ORC lies with the retailers, shippers and transporters, and often times the ball is dropped on their end. For example, there is an inexcusable lack of proper reporting of cargo thefts. However, industry professionals across the board agree that the government could be doing more to help them. Currently, 34 states have ORC laws on the books, but there is as of yet no federal ORC law, despite the fact that these crimes usually result in far more net profit for those that commit them than crimes that are considered more serious, such as bank robbery. Meanwhile, the NRF survey showed that a small majority of retailers felt dissatisfied with the support they receive from law enforcement when they do report a crime.

Organized retail crime is a costly problem. More than just the loss in sales and margins, more than the cost of replenishment and retention, the price those along the supply chain pay in terms of their reputation and their relationship with their clients cannot be measured purely in dollar signs. Although ORC can no more be fully eradicated than crime in general, those in the supply chain can do something about it: through a combination of awareness, security investment, and public pressuring of law enforcement to enact new laws while enforcing those already in existence, the scourge of OCR can be significantly reduced.