Thursday, September 14, 2023

The Organised Retail Crime Phenomenon, Explained

In light of recent theft incidents, industry stakeholders are urging lawmakers to pass new laws that would make it easier to prosecute repeat shoplifters.

There isn't definitive data that retail crime is on the rise. Furthermore, some criminal justice experts say punitive measures will exacerbate racial disparities in the justice system while doing little to deter theft.
Others believe retail shrink, or the loss of inventory due to a number of causes include theft, is cyclical in nature and that the industry has hit its most recent peak.

Smash-and-grabs. Theft rings. Gangs and brazen daylight robberies.

Retail’s theft problem seems to be getting worse, at least according to the mountain of headlines claiming so. In earnings calls, CEOs point to shrink, or inventory loss due to a number of reasons including theft, as a culprit for slimming profits. Blaming the uptick in crime, some retailers have even shuttered locations in once-desirable downtown neighbourhoods such as San Francisco’s Union Square area.

The data paints a more ambiguous picture: in some cities, including New York, crime statistics show an increase in shoplifting and store break-ins. But thefts are down in other locales, and there is little reliable nationwide data pointing to a retail crime wave.

Still, a growing number of retailers employ private police and lock up merchandise. Grocers are testing out facial recognition technology to identify thieves. Local officials have convened task forces to tackle the issue and promised tough new anti-shoplifting measures backed by trade groups, including the National Retail Federation. At least eight states are considering or recently passed policies that would make it easier to prosecute repeat offenders, according to the organisation.

In California this week, attorney general Rob Bonta unveiled a new partnership between the Justice Department and more than a dozen retailers, including Target and Amazon, which pledged to share more information to law enforcement regarding theft incidents as well as suspicions of stolen merchandise being listed online.

In Congress, lawmakers conducted a hearing earlier this month on the rise in organised retail crime, during which they heard testimony from the mother of a Home Depot security guard who was fatally shot while trying to stop a robbery. Some criminal justice experts say more-punitive measures will exacerbate racial disparities in the justice system while doing little to deter theft.

The situation, in other words, is fluid. Some believe the current spate of retail theft is part of a broader cycle. UBS analyst Michael Lasser examined mentions of the term “shrink” in earnings calls between 2005 and 2023, concluding that retailers’ focus on shrink regularly rises and falls, and that the industry may have hit its most recent peak. Below, BoF unpacks what’s really going on with retail theft.
Is retail theft actually going up?

That’s a surprisingly difficult question to answer.

In the US, there is no comprehensive database on shoplifting or robbery. Retailers don’t report every case of shoplifting to local law enforcement, and police departments don’t always pass along their tally to the FBI, making its nationwide figures incomplete.

The NRF’s most recent data shows a 4 percent increase in total losses from theft in 2021, to $94.5 billion. But as a share of overall sales that represented a decrease from 1.6 percent to 1.4 percent. .

In New York City, where the leading local tabloid declared in February that “everything’s a five-finger discount these days,” reported incidents of crime in clothing stores rose from 4,059 in 2017 to 5,170 last year, according to a BoF analysis of city data (the figure includes all types of crime, from theft to disorderly conduct).


What is responsible for the rise in crime?

There’s more of a consensus that thieves are getting better organised. The NRF report found that retailers said they saw an average 26.5 percent increase in organised retail crime incidents between 2020 and 2021. The agency defines ORC as “large-scale theft of retail merchandise with the intent to resell the items for financial gain,” typically involving a group of people who steal a large volume of products which are then sold through online auction sites, flea markets and other channels.

The NRF believes its 2022 survey will show another uptick, said David Johnston, NRF’s vice president of asset protection and retail operations

Organised retail crime is more of a threat to store employees’ safety, and retailers’ bottom line, than more run-of-the-mill shoplifting, experts say.

An act of organised retail crime can look a lot like a heist, according to NRF’s Johnston, in which the leader identifies merchandise that can be easily resold online, and directs the boosters, or the thieves, on where to go and what to grab.

While there is no definitive data that shows organised retail crime in particular has increased in recent years, it’s undeniable that reselling merchandise is easier than ever with the advent of e-commerce marketplaces.

“The problem is not consumer theft,” said Karl Langhorst, adjunct professor for the University of Cincinnati’s School of Criminal Justice and veteran retail loss protection executive. “These are repeat offenders stealing for resale.”

What solutions are lawmakers proposing?

Legislative responses to crime will have profound and lasting effects on the criminal justice system and society at large.

The NRF and other industry stakeholders point to the high value thresholds for the goods stolen to be counted as felony theft as a key driver of retail crime. In Wisconsin, for instance, any theft of goods below $2,500 is considered a misdemeanour rather than a felony, which typically results in a prison sentence. Earlier this year, some state lawmakers proposed a bill that would lower the Wisconsin felony minimum of theft to $1,000.

This would be a reversal of a more recent trend in which states have moved to increase their felony theft threshold rather than lower it. Between 2000 and 2018, at least 38 states have raised what’s considered felony theft, according to Pew research, and that most of the states that did so continued to see a decline in property crime and larceny rates that began in the early 1990s.

Advocates of criminal justice reform are critical of more punitive anti-shoplifting laws proposed by the NRF and others, arguing that harsher penalties are ineffective, will contribute to mass incarceration and exacerbate racial disparities.

“We have a criminal justice system that’s completely overwhelmed with more offenders than we can handle,” said Richard Hollinger, professor emeritus in the department of sociology and criminology at the University of Florida. “The question is, do we want to aggravate or exacerbate that problem by putting non-violent offenders in prisons?”

What can retailers do to protect themselves?

Not much more than they’re doing already.

Lockboxes, security guards and facial recognition have not quelled retail theft. As a safety measure, most store associates are prohibited from intervening in an act of theft.

Nonetheless, the tide appears to be turning without any major shifts in approach among retailers. The industry may have hit the “peak of the shrink cycle,” according to UBS analyst Michael Lasser, who published a note on the topic Tuesday.

Tracking the mention of the term “shrink” in earnings transcripts dating back to the aughts, Lasser and his team found that the average number of times it was mentioned actually peaked in 2005 and has not reached similar heights.

The INFORM Consumers Act, which will go into effect later this month, will be another tailwind for retailers grappling with crime, Lasser noted. The new federal law requires online marketplaces to verify information about high-volume sellers, disclosures that would bring to light potential counterfeit vendors and other types of illicit sellers.

“There are periods where shrink rises and ebbs,” Lasser wrote. “Transcript mentions and gross margin deterioration suggest that we are at the peak of the shrink cycle, and we would expect shrink to improve moving forward.”

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