The Supply Side: Organized crime continues to bilk retailers out of billions

Organized retail crime remains a growing problem for retailers of all sizes. There are no signs of abatement, according to Tony Sheppard, a loss prevention specialist with software platform ThinkLP. Sheppard said it is not a victimless crime, and over time it raises prices for consumers.

He said Walgreens recently closed five stores in San Francisco, citing rampant shoplifting by organized crime that cost the stores more than $1,000 per day in stolen goods. Walgreens said the problem in San Francisco forced it to shutter 10 stores in the city since 2019.

“Organized retail crime continues to be a challenge facing retailers across San Francisco, and we are not immune to that,” Walgreens spokesperson Phil Caruso said. “Retail theft across our San Francisco stores has continued to increase in the past few months to five times our chain average.”

Caruso said the retail chain increased spending on security measures to 46 times that of other locations, yet the crime continued.

Sheppard, who recently spoke at a retail conference in Dallas, said it’s sad for a community when a local drug store closes. Still, business is business, and organized crime continues to increase in the post-COVID-19 recovery.

The National Retail Federation (NRF) found that 57% of respondents said organized crime had worsened, according to a recent survey of retailers. The NRF said 65% of retailers agree that organized retail crime (ORC) gangs are exhibiting higher levels of aggression and violence than they did the year before. Retailers cited COVID, policing and changes to sentencing guidelines, and the growth of online marketplaces as top reasons behind the increase in criminal activity.

The NRF said that with the size and scope of these threats continuing to grow, it is clear retailers need support from additional external resources, including lawmakers and law enforcement. NRF found that 78% of survey respondents believe federal ORC laws are needed.

Sheppard said ORC gangs operating theft rings could do immense damage in a matter of minutes. Targeted items often stolen in bulk include designer clothing, laundry detergent, allergy medicine, pain relievers, teeth whitening strips and baby formula. Last year, the top five cities for ORC were Los Angeles, San Francisco, Chicago, New York and Miami. Sheppard said several crime rings hit south Texas and then traveled north to Oklahoma City, Tulsa and other metro areas along the way.

Sheppard said three levels of thieves steal products from retailers in bulk and then sell to resellers for about 30 cents on the dollar. Thieves stealing the goods in stores are called boosters. He said level 1 boosters work alone in familiar areas and tend to move the goods on a marketplace or to a trusted fence (reseller). He said level 2 boosters work with other small groups in expanded areas and often belong to loosely structured groups. Level 3 boosters travel on a national level and are affiliated with organized theft rings.

He said one level 2 group of boosters hit nine stores in the Dallas market in 90 minutes and stole $9,000 worth of product, mostly allergy medicine from drug store chains. He said the group had plans to hit stores in the metro area and then head to Oklahoma City, but law enforcement caught them. Had they managed to pull off their heist, he said the losses to retailers would have been more than $250,000 for a couple of days’ work.

Sheppard said boosters work with fences or resellers, and like there are differing levels of boosters, there are also varying levels of fences. He explained that the level 1 fence probably looks legitimate, but it recruits and trains boosters. The basic level fence could buy products from 10 to 20 boosters per day. He said they might move the product daily or weekly to a level 2 fence. The mid-level fence buys stolen goods from boosters and likely operates an overseas repackaging warehouse.

They often operate out of a storage unit or their home. Sheppard said that at this level, the fence could remove markings from the product and repackage it. They also operate online marketplaces and sell to level 3 fences. A level 3 fence operates as a wholesaler or distributor mixing legitimate products with stolen ones. The level 3 fence often does not know the product is stolen if the level 2 does a good job repackaging it. Sheppard said the level 3 fence moves the product back into commerce. In some cases, they sell the goods back to retailers where they were stolen.

Sheppard said there are several reasons retailers might buy products from wholesalers that are selling stolen items. He said small independent chains often purchase products from wholesalers because they are too small for full truckload deliveries from the manufacturer. He said closeouts and display products also make their way into the wholesale market for resale, as do retail overbuys.

He said a national booster crew stealing Claritin allergy meds earns $3 per box from their low-level fence (buyer), who then sells up the chain for $7. The distributor will get $8 when he sells it to the wholesaler, who earns $9.50 when he sells it back to retail, who then reprices it for $12 a box. While the $3 per box may seem like a little return, they steal hundreds of boxes in a matter of hours and then ship them to their fence, Sheppard said.

He said these groups often hit a store with masks – which is now required in many cases – and they quickly stuff their bags with as much as they can while the clerk is distracted. Then it’s down the street to the next store. He said that in many cases, they strike as soon as the shelves are stocked.

“Have you ever been to a drug store to get allergy meds, and they were out of the brand you wanted,” Sheppard said. “So you go to another store down the street and they are out as well. Walmart is also out, and you resort to buying it online from Amazon. You might actually be buying stolen goods.

“Then you are mad at the store for being out of it, so you order online from now on. This deepens the loss for the retailer that the boosters hit.”

Sheppard said a national crime ring of boosters in Texas recently shipped 1,013 packages of stolen goods to fences costing retailers an annual loss of $1.72 million. In the four years they were in operation, the loss to retailers was $8.88 million. He said that was just the tip of the iceberg.

He said professional stealing is not a victimless crime. Retailers lose sales and face higher out-of-stocks, communities lose sales tax revenue, stores sometimes close, and fewer jobs and less competition can lead to higher prices. The rise of online marketplaces has made it easier for fences to move products, and retailers must do a better job of vetting and policing sellers on those sites.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.