A Little Less Talk and a Lot More Research

What We (Don’t) Know about Organized Retail Crime

ORC research

Anyone who spends any amount of time working with loss prevention professionals, solution providers, and law enforcement officers who investigate retail crime will know that organized retail crime (ORC) is a major challenge facing retailers. The National Retail Federation has estimated that, on average, ORC costs retailers approximately $700,000 per $1 billion dollars. Therefore, it is no surprise there are so many organizations dedicated to controlling ORC and so many webinars on ORC. On a daily basis, the Loss Prevention Research Council (LPRC) receives multiple e-mails about issues related to organized retail crime.

As honest scientists, we answer the questions to the best of our ability, but oftentimes, we have to add the caveat that there is simply a lot that we do not know. As researchers, that can be embarrassing to admit. As Socrates said, however, “Admitting one’s ignorance is the first step in acquiring knowledge.” How could Galileo ever discover that the Earth orbited the Sun if he refused to question what he had been taught? The simple answer is that he would not have made his discovery, and he wouldn’t have influenced the development of all of modern physics. The good thing is that, like Galileo, loss prevention scientists have some basic information. Galileo did not start from scratch; he was able to use existing technologies and maps of the stars and planets to build a better model of the solar system. Today, loss prevention scientists are in the same position Galileo was in 400 years ago: we have basic, descriptive information about a lot of things, but there is a lot that we still have to learn. If we are humble and honest about what we do and do not know, then we can advance our understanding and more effectively protect innocent people, places, and property.

As a first step, it is important to review what we know about organized retail crime because once we identify what we know, we can also identify the gaps in our knowledge. Before we can discuss what we know about organized retail crime, however, we have to define what we mean by “we.”

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There are two ways to think about “we.” On one hand, each retailer knows something about organized retail crime within their organization. Imagine there is a retailer named Bull’s Eye Merchandise. If we asked their loss prevention vice president where their most problematic stores were, they could tell us their three highest-loss stores; they could also tell us where they have the largest number of active ORC investigations, the states where ORC and shrink are most problematic, and other issues affecting their individual organization. Furthermore, if we asked regional and district loss prevention managers this question, they could list their most problematic stores, and if we asked store-level LP associates who their most frequent offenders are, they could provide this information about their store. In other words, professionals throughout the industry know a lot about their stores; in this sense, “we” have a lot of individual information about our individual organizations.

On the other hand, we know far less about organized retail crime between organizations. Once again, imagine there are three retailers: (1) Samuel’s Mart, (2) Bull’s Eye Merchandise, and (3) Citizen’s Grocery. If we asked each of them which stores had the greatest or fewest number of active ORC investigations, they could tell us. Then we could identify the characteristics of stores and locations that experience more or less ORC. In this case, “we” could develop much more collective knowledge about ORC as an industry.

What We Know and What We Don’t Know

So what do we collectively know about ORC as a profession? The good news is that we actually know a good bit. For example, we know the methods that are often used to steal products, which products are targeted most often, how some networks operate, and the various methods that are used to sell products once they are stolen. We also know a bit about which product protection solutions effectively reduce shrink in general.

Unfortunately, there is also a lot that we do not know about ORC. Some of this is very basic; for example, we do not have an established definition of ORC or ORC subtypes (fraud, shoplifting, cargo theft). Does looting qualify as ORC since there is often some level of organization involved? What about tool and building material theft by contractors or automotive part theft by those who use them to repair cars for others? What level of organization must there be among offenders for us to classify an incident as ORC? From our interactions with loss prevention professionals, there seems to be a lot of variation in what retailers classify as ORC.

Having common definitions is fundamental to having a functional, orderly society because if everyone used different words to refer to the same thing, then we would be unable to communicate. Of course, having common definitions is also the hallmark of a profession. For example, if some dog catchers called dogs “cats” and some called cats “dogs,” then dog catchers would have a very difficult time doing their jobs. The same is true with any profession; for example, doctors have detailed diagnostic manuals that provide the criteria for diagnosing a patient with a disease or disorder.

optical illusionThe lack of a common definition of ORC is also at the root of the “numbers problem.” If different retailers are classifying different types of events as ORC, then any published numbers regarding the extent of ORC are unreliable. For example, take a look at the optical illusion. If one person says, “That is one vase,” and another says, “That is two faces,” and another says, “That is two faces and one vase,” then they are going to have a problem communicating, even though all three people are looking at the same thing.

Of course, the problem is that they are just focusing on different aspects of the same thing. The same is true of organized retail crime. If one retailer classifies everything involving certain products as suspected ORC, but another retailer only classifies incidents as suspected ORC once they confirm multiple individuals are involved or that the offenders involved are reentering products into commerce, then even if they both had the same number of incidents, they would report different amounts of ORC.

We also know the lack of common definitions is a problem because in September and October of 2020, the LPRC conducted a survey on organized retail crime. One hundred and forty-six participants representing sixty retailers participated in the survey, and they were asked how important they believed it was to establish: (1) a common, industry-wide definition of ORC; (2) common, industry-wide definitions of ORC subtypes; and (3) minimum standards for classifying incidents as ORC. This graph shows their responses to these questions. Over 70 percent of respondents said that establishing these definitions and standards was either very important or extremely important for the profession.

We have a definitional problem that makes it very difficult to determine how much ORC there actually is. However, we also have a data problem. Many retailers have some understanding of the number of suspected ORC incidents as well as the approximate values of product associated with these incidents. They can also report how many active investigations they have open and the approximate value of the products involved in the cases. However, until this year, many retailers have not shared this data. This year, researchers at the LPRC are working to develop a national retail crime and shrink database that will provide insights to how much shrink there is as well as a more accurate estimate of the extent and distribution of ORC throughout the United States.

Nevertheless, because of the definitional problem and the lack of data, there is a lot we do not know about retail crime in general or ORC specifically. For example, we do not have reliable estimates of the percentage of all shrink that is due to organized retail crime. We do not have reliable data on the seasonal and long-term trends or the regional variation in ORC. We do not know the factors associated with more or less ORC among localities, states, and regions. And we do not know the extent to which ORC is committed by relatively disorganized and unstable local networks and groups, or by highly organized and stable networks spanning large geographic areas. Much of this can be accomplished by working with retailers in the United States to develop the necessary database; however, it will remain unclear how organized retail criminals actually are.

During the recent LPRC ORC survey, the participants were asked what percentage of loss they believed were due to: (1) unstable and disorganized local groups and networks; (2) stable and organized local groups; (3) networks and groups operating in one to three states; (4) regional networks and groups; and (5) national and international networks and groups. This question was asked with the hope that it would provide insights into professionals’ beliefs about how organized ORC offenders actually are.

As the next graph shows, a greater percentage of LP professionals believed that much ORC is committed by relatively unstable and disorganized local networks and groups, while fewer believed that interstate ORC groups and networks were responsible for the lion’s share of losses. In fact, nearly 80 percent of respondents believed that less than 20 percent of ORC losses were due to national or international ORC groups and networks. Unfortunately, there wasn’t much agreement in terms of which types of groups are responsible for the majority of ORC losses. This is not surprising as there aren’t any reliable industry-wide estimates of this, even though many individual retailers probably have a good idea of how much of their ORC is committed by more or less organized groups.

Although we do not have a good idea how organized most ORC networks and groups are, we do know that it is organized. This makes it a unique problem for loss prevention professionals and the industry. At Auror’s Global Retail Crime Summit last year, we had the pleasure to hear from General Stanley McChrystal, who applied his experience fighting the Taliban, an organized and networked enemy, to fighting organized retail crime. When fighting the Taliban, his team realized that they needed a networked strategy where all of the members of the network shared detailed information about existing and emerging threats and worked together to coordinate the appropriate response. In the field of loss prevention, we have several great national, regional, and state organizations that facilitate intelligence sharing, as well as several solutions that enable retailers to more effectively and efficiently share information about ORC offenders and offenses.

Even in the fight against the Taliban, however, there was still the need for analysts who could use the data to identify where the major threats were, coordinate a response, and determine whether the strategy was successful. In the lead-up to the invasion of Iraq, Donald Rumsfeld noted that there are three types of knowledge that shape the nature of military actions: there are known knowns (things we know that we know), known unknowns (the things we know that we don’t know), and unknown unknowns (things that we do not even realize we do not know). In the case of the loss prevention profession, the good news is that there are several things we know, and there are several things that we know we do not know. This is our starting point, and it is surely better than having no knowledge at all. However, because there has not been enough research and data sharing, there are also many issues that we do not even know that we do not know.

The National Retail Crime and Shrink Database

During 2021, the LPRC will have several important research initiatives. As mentioned previously, one research initiative will be to begin developing a national retail crime and shrink database. If you are reading this, then your organization can probably contribute to this initiative.

This data collection effort will facilitate research on the extent and distribution of retail crime and shrink throughout the country and provide insights into: (1) where retail crime and shrink are most problematic, including at the city, state, and regional level; (2) how patterns of shrink and retail crime change over time; and, importantly, (3) what is most effective in reducing ORC. Several retailers with thousands of stores have already agreed to share data with the LPRC, including their shrink as a percentage of sales, shrink as a dollar amount, the number of ORC-classified incidents, the average value of ORC-classified incidents, and several other data points for each of their stores. This data will facilitate a lot of research that has not been possible—until now.

This research will allow us to more effectively and efficiently:

    1. Communicate, collaborate, and coordinate ORC control efforts;
    2. Use limited loss prevention resources;
    3. Identify and target high-risk areas and locations;
    4. Enable benchmarking throughout the nation;
    5. Identify the strategies and solutions that are associated with less shrink generally and ORC specifically; and
    6. Promote effective anti-ORC policies at the local, state, and national level and push for the adoption of effective legislation.

For example, we do not collectively know the specific locations where ORC is most problematic; rather, individual retailers often know where their most problematic stores are, and we have a general idea which regions are most problematic. Unfortunately, this information is not particularly helpful because research suggests that crime is often clustered in specific places known as crime “hot spots.” In fact, according to Anthony Braga and his coauthors of “The Law of Crime Concentration at Places: Editors’ Introduction” in the March 2017 issue of Journal of Quantitative Criminology, several studies have found that over 50 percent of crime occurred in less than 10 percent of street segments, and some have found that as few as 2 percent are responsible for the majority of crime and other social problems. If retailers had a better understanding of where the ORC hot spots are, they could focus their resources in areas where the problem is the worst. If ORC is like other types of crime, and less than 10 percent of places are responsible for over 50 percent of crime, then focusing on these places would lead to the greatest reductions in loss for the industry.

However, in order to identify the hot spots, retailers must pool their data, and researchers must analyze that data. This is necessary because, with few exceptions, retailers rarely put their stores too close to each other, so they typically only have a handful of stores (at most) for a city. This means that they have very little data for each city. Unfortunately, retailers are competitors, so shrink data is very sensitive. Because of this, retailers need an intermediary who can take the data, analyze it, and let retailers know where they should focus their resources. Importantly, when we talk about targeting specific locations, we are not talking about states or regions—we are talking about focusing on shopping centers or specific geographic areas within cities where shrink and loss incidents are highest.

Collecting and analyzing this type of data will also enable benchmarking throughout the industry. If the average shrink for a city among all retailers is 1.38 percent and a retailer knows that shrink for their store in that city is 2.2 percent, then this would indicate that there may be a problem at that store. Similarly, if a retailer knows that, on average, the number of ORC incidents are higher at one of their stores than other stores in the area, they can assume that they need to change their ORC control strategy or identify why they are reporting a higher number of ORC incidents. After investigating the issue with researchers, they might find that they are simply using a broader definition of ORC. This is another reason it will be important for retailers to establish minimum standards for classifying incidents as ORC or suspected ORC. Unfortunately, without sharing data, retailers cannot know which stores are performing better or worse than the industry average for a specific geographic area.

Finally, developing a national retail crime and shrink database will enable us to identify which product protection strategies and solutions, as well as which laws and policies, are associated with less retail crime and shrink. For example, this data would enable us to examine whether higher felony-theft thresholds are associated with greater shrink among states. Alternatively, if we combine the shrink and retail crime data with data on the product protection solutions and strategies retailers use at specific locations, then we can also identify which solutions are associated with less loss. All of this will enable retail organizations such as the National Retail Federation and the Retail Industry Leaders Association to effectively lobby for criminal justice policies that are known to reduce shrink and ORC, and it will enable retailers to adopt the most effective loss prevention practices.

There is still a lot to learn, but the national retail crime and shrink database is a necessary first step in improving our understanding of ORC and retail crime in general. It will allow us to learn more about the things we know that we do not know, such as the specific locations where ORC is most problematic, seasonal trends in ORC throughout the industry, the extent of ORC throughout the nation, and the policies and practices that are associated with more or less shrink and retail crime. But retailers must be willing to share their data with research organizations and researchers who will respect retailers’ privacy, analyze the data, and provide the industry with useful insights from the data. As General Stanley McChrystal said, “It takes a network to defeat a network.” Retailers can control ORC if they will work together and with researchers. ORC is a collective problem that is committed by organized groups and networks; therefore, solving it will require a collective and organized response by informed loss prevention professionals and scientists.

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