Organized Retail Crime: Executing the ORC Strategy

Shoplifting

Organized retail crime remains an ongoing challenge for loss prevention programs across the country. The following article serves as Part 2 of a two-part series on organized retail crime that provides both a historical account and a current perspective on this national dilemma.

Part two of the series examines the strategies and tactics employed by Limited Brands in their fight against organized retail crime.

In Part 1 of this article, we discussed the overall organized retail crime (ORC) strategy at Limited Brands. Here, we share our ORC-specific training program and tactics used to execute this strategy.

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Training the ORC Team

Because we were dealing with sophisticated criminals, not petty thieves, it quickly became clear that we needed talented loss prevention professionals to execute our strategy. That’s why we created a comprehensive training program that we refer to as our “ORC pillars of strength.”

The foundation of the training is designed to build our teams capabilities to identify, apprehend, and put professional criminals targeting Limited Brands “Out Of Business.” There are five main pillars to the training—civil liabilities, legal, investigative, technology, and execution.

Civil Liabilities—Every new ORC associate must take and successfully complete a computer-based training program that focuses on observing a theft, including the five-step principle.

Legal—Criminal procedure training is conducted on everything from arrest to arraignment to search and seizure to ensure the team is well versed on what is required by law enforcement throughout the whole criminal justice process. This allows us to become more productive partners with law enforcement.

Investigative—All facets of investigations are examined, from how to conduct surveillances of multiple suspects in a mall to surveillance of fence locations to Internet investigations.

Technology—To win the organized retail crime battle, not only do we need to field a well-trained team, but a well-equipped team. We must invest in the right technology to support our goals.

Execution—What brings the whole program together is flawless execution, which we define by having the right people in the right place at the right times doing the right things. To help position the team we have developed crime pattern analysis reporting and market-specific reporting.

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Investigative Strategy and Tactics

In the underbelly of society, criminals have a familiar mantra that spans all cultures—criminals will always go down the path of least resistance. For the traditional mafia outfit, the easiest path is illegal sports betting that fuels their more illicit endeavors. For organized retail crime groups, it is the low-risk, high-reward scenario of retail theft.

The specialty retail environment provides unique challenges for the loss prevention specialist when dealing with professional organized retail crime teams. In specialty stores most of the newer, hotter, high-value products are unprotected, in the front of the store, near large, open exits. This translates into a great opportunity for the professional criminal.

To combat this external threat, we begin in the store with our associates. Our regional loss prevention managers continually train and coach the store associates to provide a great customer experience, which deters many opportunists and petty thieves by “prevention through service.”

Because professional theft teams ignore and circumvent this strategy, we literally had to throw out the old rule book and devise new ways of tracking and apprehending these offenders.

We have trained our loss prevention staff to be more surveillance and intelligence-gathering experts, rather than traditional store detectives who apprehend the shoplifter at the door. To this end we have developed a proactive, three-pronged investigative approach to identify and apprehend organized retail crime groups.

Mall Operations

Our teams have been strategically placed throughout the country in the areas that have the most organized retail crime activity, such as the New York tri-state area, Baltimore/DC, Miami, and Los Angeles. On a daily basis the teams measure crime data supplied by our analysts and compare it to their knowledge of trends in their market. The managers then allocate resources to the appropriate areas and place the mall and our businesses under surveillance.

The goal of these surveillances is to identify organized retail crime groups and observe them committing the theft. We then attempt to identify the vehicle they are using, place it under surveillance, and then contact our law enforcement partners. When the organized retail crime group finishes their theft activity and begins to leave the area in the identified vehicle, law enforcement moves in for the arrest.

This process has a two-fold benefit. First, all suspects in the vehicle, including the driver, lookout, and distracter, will all be charged with the same crime of theft since we can definitively show that they all worked in concert to obtain their ill-gotten goods.

Second, the criminal charge is now much more meaningful than what would probably have been a misdemeanor or low-grade felony. With the aggregated amount of stolen property from our stores and others, the suspects are usually exposed to criminal charges that will result in multi-year jail sentences.

Sample Investigation. To illustrate this process, consider the following case where our teams had selected a specific mall based on analysis of crime data and a tip from a confidential informant.

During the mall surveillance, one of our investigators observed the theft of several bras from our Victoria’s Secret store. Rather than stop the suspect, the investigator notified her partners, placed the suspect under surveillance, and discovered that this suspect was working with three other suspects who were conducting countersurveillance and distracting store associates while the fourth suspect was stealing. Our investigators also identified the vehicle that they were utilizing.

After several observations of theft at our businesses and others, law enforcement was contacted, but was too busy to respond at that point. The decision was made to follow the suspects when they left the premises and advise law enforcement of their location.

The suspects traveled to a low-budget motel several miles from the mall and were observed unloading all of their stolen items, which were all now neatly stored in black garbage bags, into one of the rooms of the motel. They then entered an adjoining room.

At this point law enforcement was again contacted and advised of the situation. Because of the constant surveillance of the suspects and their actions, the police felt comfortable waking a judge at 2:00 a.m. to sign a search warrant for the two motel rooms based on our observations.

The result of the search was the arrest of the four suspects, who were all wanted in several different states for theft activity, and the recovery of over $100,000 of stolen merchandise from several malls in the region.

Criminal Fence Investigations

The second prong in our ORC investigative approach is the identification, infiltration, interdiction, and closure of fencing locations. Experienced law enforcement investigators know that if you follow the money, stop the money, you stop the crime.

In organized retail crime investigations, the money is located at the various quasi-legal and illegal fence operations that buy stolen property, whether they actually order the product from the professional thieves or put general word out that this is what they want.

We have developed a specific strategy for identifying these locations. Once the location is identified, we send in undercover investigators or a cooperating confidential informant to make a purchase and to observe the activity in the alleged fence location. We also attempt to identify the owner and principals of the location through various public records searches. Other investigative avenues we take are tried-and-true detective work, such as trash pulls and surveillance.

Once we verify criminal activity, we contact our law enforcement partners and debrief them on our activities and provide them with our evidence, which is encapsulated in an investigative binder. Law enforcement then verifies our information and depending on their demands, a search warrant is issued for the “business” as soon as possible.

Sample Fence Closure. In this sample investigation, we identified a location that was selling our products in their retail store. We also identified a basement apartment down the street that appeared to be their distribution center. Through the use of surveillance, trash pulls, and undercover buys, we showed that there was a clear link between the two locations.

Based on this information, the police initiated surveillance on the distribution center and followed a booster team from this location and observed them steal in several markets throughout the region. When the suspects arrived at the location to unload the merchandise, police raided the location, apprehended five suspects and recovered $144,000 in stolen merchandise.

The location was set up so that when boosters came in with their stolen merchandise, personnel in the location would take the merchandise and categorize the items and also remove any EAS tags. They would then ship the stolen merchandise to the retail store for sale at 50 percent of the retail price.

Based on evidence found at this location and evidence our team provided the police in another trash pull, the judge signed the search warrant for the retail location resulting in the recovery of over $600,000 in stolen merchandise.

Law Enforcement Relations

The third and probably most important prong of our strategy is to maintain and continue to develop better relationships with law enforcement.

In the past law enforcement placed a very low priority on shoplifting crimes. Our initiative for the past several years has been to change that perception and show our law enforcement partners that ORC crimes amount to billions of dollars of lost revenue to companies that create and support jobs in their area. We also show them the impact to the government through the estimated loss of income tax and sales tax revenues.

We also offer ORC training to any law enforcement agency that is interested, and through our law enforcement grant program donate money or equipment to law enforcement agencies affected by organized retail crime.

Our initiatives have resulted in strategic partnerships with many law enforcement agencies throughout the country, including, but not limited to, the police departments in New York City, Montgomery County (Maryland), Arlington County (Virginia), Miami/Dade County (Florida), and Los Angeles, as well as Boston area law enforcement, New Jersey state police, FBI, Secret Service, and Postal Inspection Service.

Sample Partnership. An example of excellent law enforcement/retailer partnership was Operation Retail.

In this operation ten retailers banded together and funded an operation in cooperation with the Office of the New Jersey Attorney General Organized Crime Bureau that would lure in booster teams to a fictitious fence location run by law enforcement.

The retail coalition provided the “fence” location and enough funds to make the purchases from organized retail crime teams that would sell to our fence. The attorney general’s office provided all the personnel, certain surveillance equipment that was restricted to law enforcement only, and the statutory law enforcement power for the operation.

The location was a small store front in an urban neighborhood. The location was covered with covert cameras and microphones that could record every angle of the transactions taking place.

After establishing the fence operation, we sent confidential informants and undercover detectives into areas where booster teams lived and saturated the area with business cards and notified suspects that this new operation was paying top dollar.

Like the movie Field of Dreams, it was true that “if you build it, they will come.” After about a week or so of anxious patience, our first booster team contacted our undercover detective to arrange a transaction. All items sold to the detective were in black garbage or laundry bags, and still had the EAS tags on them.

With the word out, booster teams began contacting our detective on a daily basis. During the investigation we catered to booster teams from all over the East Coast as well as the Chicago area.

Six months into the investigation, enough evidence was accumulated to indict multiple suspects that we had previously identified through surveillance after the sale of their stolen goods. The ultimate result of Operation Retail was that eighteen major retail theft players, including one who produced custom booster bags, were indicted on charges that exposed them to ten-year prison sentences.

For the retailers involved, particularly Limited Brands, theft dropped significantly. One month after the arrests, known losses in that market decreased by $60,000.

This symbiotic relationship where law enforcement and retail work hand in hand bolstered the concept that good relations with law enforcement will not just get good law enforcement results, but will also produce positive measurable results for the retail businesses involved.

Equipment and Training

Even with the most talented investigators, if you do not provide the proper training and equipment, your investigations will be seriously handicapped. That’s why Limited Brands has made a significant commitment in this area.

Surveillance Training. Besides the basic theft observation training, we teach more sophisticated skills, such as mobile and foot surveillance. This training is done through consultants who are former federal agents who have training experience with the FBI, CIA, NSA, and Special Operations. Our surveillance training always stresses safety first.

Criminal Procedure Training. Every ORC team member is also trained in criminal procedure, so that the investigator understands the efforts that the prosecutor and police officer have to go through to get a warrant signed. With this knowledge and the understanding of the criminal justice process, the investigator can offer evidence he or she knows will be viable to a prosecutor. Understanding criminal procedure also alleviates potential frustration felt by retail loss prevention members who see that the process, most of the time, and not the officer or prosecutor, is guilty of slowing the evolution of the case.

Equipment. We have equipped our team with state-of-the-art equipment, including covert surveillance cameras, high-end digital still cameras, digital video recorders, bag cameras, and GPS devices. Recently, we also rolled out surveillance vehicles for long-term static surveillance of locations throughout the country.

We reassess our abilities every year to make sure that we are keeping pace with the speed of technology and also evolve our training sessions to correspond with current legal decisions as well as the changing methods of the organized retail criminal.

Legal and Legislative Strategies

Since September 11th, the resources of law enforcement, prosecutors, and the courts have been stretched to their limits. Because organized retail crime is perceived to be a lesser problem, and thus, a lower priority than terrorism, narcotics, and violent crime, a revolving-door justice situation has defined the low-risk, high-reward equation currently enjoyed by organized retail criminals. Limited Brands legal and legislative strategies are crafted to alter that equation to the extent that we can.

Obviously, when organized retail criminals are in jail, they are not stealing from our stores. It becomes apparent, then, that a strategy that increases the amount of time that organized retail criminals remain in jail will reduce organized retail crime-related shrink. Thus, there is a monetary value to putting and keeping organized retail criminals out of business.

Based on a marked reduction in known losses realized in the aftermath of numerous arrests and convictions related to Operation Retail in Elizabeth, New Jersey, Limited Brands was able to conservatively estimate that losses in that market declined approximately $2,625 for every thirty days that an organized retail criminal remained incarcerated. Note: This is clearly a very conservative estimate.

Since then, we have continued to calculate the out-of-business value or OBV as a metric of our organized retail crime program. Over the past two years, professional shoplifters apprehended and prosecuted as a result of our investigations spent 583 months incarcerated. That equates to 48.5 years in jail and an OBV of $1.5 million dollars.

Our strategy is to exercise our rights as victims. That is, to put a human face on an otherwise unsympathetic corporate victim. After an arrest has been made, the ORC team will closely monitor and attend bail, arraignment, and sentencing hearings for the purpose of influencing bail amounts, and terms of imprisonment and probation. In addition, we will routinely submit victim impact statements.

This strategy has influenced a court in Crescent City, California, to convict an e-fence operator on felony charges and sentence her to a year in jail. In addition, the court awarded Limited Brands $132,000 in restitution.

Moreover, it is our practice to establish a working relationship with prosecutors and probation officers. Our goals are to educate them about organized retail crime and to ensure that organized retail criminals are clearly distinguished from shoplifters with regard to prosecution, sentencing, and probation.

We are also exploring the use of local ordinances, tax, and civil law. Local tax, fire, building, and zoning laws can be used to close fence locations. Such enforcement measures may also lead to the discovery of evidence that may be used in a criminal prosecution.

Our civil law strategy includes the filing of civil suits, including the use of state RICO statues, against organized retail criminals for money damages. Ultimately, as certain retailers have done with regard to the sale of counterfeit merchandise, our strategy will encompass civil suits against landlords that knowingly tolerate or profit from unlawful activities conducted on their premises.

Limited Brands legislative strategy includes partnering with the National Retail Federation, Retail Industry Leaders Association, peer retailers, and other industry groups to support legislation distinguishing organized retail crime from shoplifting and increasing the penalties for organized retail crime.

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Cyber Crime

Only recently has combating cyber crimes become an important part of retail loss prevention. Today, cyber crime investigation efforts are on the cutting edge of technology, making use of high-tech camera systems, multi-channel digital video recorders, exception-based reporting, link-analysis software, Internet search tools, and relational databases.

Unfortunately, cyber crime investigators are not the only ones exploiting today’s technology. Organized retail criminals have also learned that they can use computers and the Internet to further the plundering of retailers for personal gain with anonymity and little risk of detection and prosecution. Criminal schemes such as e-fencing, fraudulent receipts, store credits, cloning gift cards, switching bar codes, and counterfeit coupons are a growing problem. The ingenuity of cyber criminals is constrained only by their imagination.

Within the context of this article, we want to focus on a discussion of one of these schemes, e-fencing.

Addressing E-fencing Operations

Selling stolen merchandise via the Internet, or e-fencing, has become a top priority for retailers today. According to the Internet Crime Complaint Center, a total of 231,000 Internet crime complaints were received in 2005. Of these complaints, 62.7 percent were attributed to online auction fraud.

On-line auction fraud, including e-fencing, cost retailers over $132 million dollars in 2005. This amount is up from $64 million dollars in 2004. There are several factors that make e-fencing an attractive way to sell stolen merchandise.

First, e-fenced stolen merchandise is sold at approximately 70 percent of its retail price. In contrast, brick-and-mortar fences pay professional shoplifters between 20 to 25 percent of retail and then sell it for approximately 50 percent of the retail value.

E-fence businesses also enjoy low overhead costs, relative anonymity, and little chance of prosecution. In addition, the Internet provides access to a global consumer 24/7 year round.

Limited Brands’ e-fencing strategy is very straightforward—research loss data, surf the net, identify possible online fences, and shut them down.

Of course, this sounds much simpler than it actually is. There are literally dozens of Internet sites where a cyber criminal can fence stolen goods. The most popular sites are eBay, Yahoo, and Amazon.com.

On any given day, eBay will list in excess of 100,000 individual auctions of Limited Brands merchandise. Determining where to begin your investigation, therefore, requires thorough data analysis, knowledge of the inner workings and policies of offending Internet sites, professional instinct, and a little bit of luck.

Sample e-fencing Investigation. In one e-fencing case our stores in the Boston area experienced a large increase of organized retail crime losses. Some individual thefts exceeded $10,000. In response, we searched the Internet to discover if any of the stolen merchandise was for sale online.

An eBay seller named Inesteva was identified. Inesteva had posted several auctions with a large volume of merchandise from Victoria’s Secret, Express, and other retailers. Most of these auctions were identified as “wholesale lots” containing 100 or more items.

Using an alias, we contacted Inesteva via telephone and email and made several purchases of Victoria’s Secret merchandise. Inesteva bragged that she could get anything we wanted.

In order to establish probable cause to obtain a search warrant and to assist law enforcement in identifying our merchandise after a search warrant was executed, several Victoria’s Secret stores located near Inesteva’s Boston-area residence marked the price tags of specific merchandise with an ultraviolet pen.

After the merchandise was marked, we ordered a large quantity of the same type of merchandise via email. Inesteva subsequently responded that she had 180 panties for sale, which we agreed to purchase. Significantly, a Victoria’s Secret store that had marked merchandise reported a theft of 180 panties earlier that same day.

As a result, the Andover Police Department was requested to assist in apprehending Inesteva. Subsequent police surveillance of Inesteva’s residence showed her loading shipping boxes into her vehicle and taking them to the post office. Andover detectives intercepted the shipment, and confirmed that it was indeed the merchandise we ordered. The shipment was then allowed to proceed.

When the boxes arrived at our office, it was determined that the price tags of thirty of the 180 pair of panties were marked with our ultraviolet pen. An application was made to the Essex County District Attorney and search-and-arrest warrants were issued.

The warrants were executed at Inesteva’s, aka Jennifer Stevanovich’s, home. Andover police recovered $28,000 in stolen property and $15,000 in cash. Also found in the home were over 600 defeated EAS tags, a tag remover, and numerous booster bags.

Stevanovich later pled guilty to two felony counts of receiving stolen property and received a 30-month suspended sentence and was ordered to pay Limited Brands restitution. At the time of her arrest, Stevanovich was on public assistance and living in government subsidized housing. She was also later charged with $117,000 in welfare fraud.

Maintaining Focus on Organized Retail Crime

Although Limited Brands has concluded million-dollar investigations, recovered millions of dollars worth of merchandise, shut down thousands of Internet auctions, and put hundreds of professional criminals behind bars for many years, our organized retail crime program is still in its infancy. Unfortunately, as we get better, they get better.

We must continue focus on this major threat to our business because every time these groups steal large volumes of our key items and put us out of stock, they not only cause shrink, but negatively affect sales and our customer experience.

As an industry we need to collaborate to leverage current legislation and influence new legislation, especially on the Internet.

We need to continue to train, educate, and build more partnerships with law enforcement and prosecutors.

Perhaps most importantly, we need to come together as a retail loss prevention community to jointly confront this threat.

To read Part 1 of this two-part series, “Setting the Stage for an Organized Retail Crime Strategy” click here.

This article was first published in 2007 and updated December 23, 2015.

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