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Tech and the fight against organized retail crime

IntelliVid executive Jumbi Edulbehram says the challenge will get steeper as criminals become increasingly organized.

Retailers are facing a $10 billion annual problem called organized retail crime. It's an all-out war that very few are aware of--yet it is being fought every day at every store in America.

It's no longer the casual shoplifter that retailers are concerned with, but rather the professionals who create the most challenging issue from a loss-prevention perspective.

These gangs are highly organized groups of criminals that specialize in stealing goods from retailers then "fencing" them. These organizations can be as sophisticated as companies, complete with organizational hierarchies, procurement lists and financial goals. Some rings have been caught with as much as $10 million worth of goods.

Of concern to retailers is the fact that they are often unaware they are being targeted by organized retail crime gangs, since organized criminals look and act much like other shoplifters--that is to say, like shoppers. The only difference is that because they are professionally trained, they're harder to spot than the average shoplifter.

Teams of shoplifters and regional distributors called "fences" are putting a major dent in retail profitability--and creating higher prices for all of us. As a percentage of earnings before taxes, theft amounts to an astonishing 49 percent. Imagine retail profits potentially being twice what they are today, at the same level of sales.

Teams of shoplifters and fences are putting a major dent in retail profitability ? and creating higher prices for all of us.

This isn't a new problem. Wal-Mart Stores recognized it back in the 1980s, when it created a special investigation group called the "A-team." That group was so successful that other retailers have added special organized retail crime investigation groups. Today, for example, in just the drugstore category, both CVS and Walgreens have executives heading up groups to fight organized retail crime. And increasingly, at industry conferences, organized retail crime is getting much more attention and airtime among the participants.

In fact, two major retail trade organizations--the National Retail Federation and the Retail Industry Leaders Association--have initiatives to encourage retailers to share knowledge about theft incidents. Developments like these are encouraging, but information sharing alone won't solve the issue.

The biggest problem is that crooks simply aren't concerned with the consequences of getting caught, because it's not difficult to steal from many retailers and the risk is low. Moreover, by stealing from retail as opposed to breaking into homes, they have brand-new, unused goods that can easily be sold. So when you combine that demand with the relative ease of obtaining the merchandise, you find a high incidence of organized retail crime.

Even when caught, shoplifters are seldom charged. Only one out of 150 incidents leads to prosecution. If you steal, the odds are tremendously in your favor that you'll get away with it. The law doesn't help the situation; in most states, you have to steal a considerable amount to even be charged with a felony. In Wisconsin, for example, you'd have to steal more than $2,500 worth of goods per shoplifting incident to be charged with anything more than a misdemeanor--basically the equivalent of a traffic ticket. Organized retail crime professionals know these limits well, and they steal as much as they can while still staying under them.

Not surprisingly, thieves are selective about what they steal, targeting expensive items that are in high demand. Many so-called hot items--for example, those that are stolen most often--are those found at pharmacies and supermarkets, such as pain relievers, diabetic test strips, infant formula, hair restore and shaving products. Overall shrink in these items has been reported to be 25 percent or more, according to a 2005 study published by the National Retail Federation. That contrasts with an overall typical shrink rate for all goods of between 1 percent and 1.5 percent. Clearly, the professionals know what they want and what they can easily turn into cash.

Once stolen, goods show up at flea markets, small neighborhood grocery stores and with fences. However, even legitimate online markets have become a significant means of offloading purloined goods. By some estimates, about 1 percent of all items sold on eBay are stolen--that's more than $400 million of stolen goods that may be auctioned on eBay this year. An executive from a major consumer products company has said that the majority of its products that turn up on eBay and other Web sites are stolen. Organized retail crime plays a major role in getting those items there.

Most people assume that retailers have sophisticated equipment installed to foil shoplifting. It's true that most retailers have video surveillance systems in their stores. In fact, more than 80 percent of retailers use these systems as their primary investigative tool. But they are ineffective at stopping shoplifting, because finding theft incidences is like searching for a needle in a haystack. So they mostly record theft incidents rather than prevent them.

The problem only becomes more acute for larger stores, because the more cameras a retailer has, the more time-consuming and tedious it is to search for incidents and to review video.

In recent years, a growing base of technology companies has delivered innovations to this market. They've created a range of solutions, some of which enable stores to catch thieves before they leave the store. For example, some systems use cameras and software to sense when specific high-risk goods are moved and enable retail personnel to track thieves in the store after they've lifted the goods.

Other innovations include smarter electronic article surveillance systems and integrated retail systems, such as point-of-sale and exception-reporting systems, to catch thieves. The full impact of these technology innovations will become more apparent as retailers roll them out more broadly.

Putting the clamps on organized retail crime is difficult, but doable. To do so, retailers must increase their knowledge sharing with each other and ramp up the use of available technology before they can achieve measurable results in this battle against thievery. The stakes are simply too high to ignore the challenge.