Setting the Stage for an Organized Retail Crime Strategy

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Editor’s Note: Organized retail crime remains an ongoing challenge for loss prevention programs across the country. The following article serves as Part 1 of a two-part series on organized retail crime that provides both a historical account and a current perspective on this national dilemma.

One of the hottest issues in loss prevention today is organized retail crime (ORC). At every conference there are numerous ORC presentations delivered to standing-room-only attendance.

A recent National Retail Federation (NRF) survey of senior loss prevention executives revealed that 81 percent of their organizations have been victims of organized retail crime. According to the University of Florida’s most recent National Retail Security Survey, external theft accounts for approximately 33 percent of the total retail shrink pie or $12.5 billion…although many of us believe it’s much higher.

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According to the FBI Unified Crime Report, organized retail crime losses individually exceed auto theft ($7.6 billion), burglary ($3.5 billion) and larceny ($5.1 billion). Clearly organized retail crime is an escalating problem, but it’s not as new as one might think.

Many loss prevention professionals have investigated organized retail crime incidents over the past several decades, only it wasn’t called ORC then. The big difference is that fifteen to twenty years ago these groups were few and far between. They were also usually local criminals or, at the very most, regional.

Today’s professional retail criminals are much more sophisticated and work in larger teams where crew members have clearly defined roles. They travel across the country and with precision and stealth steal large volumes of product from retailers. They sell the merchandise to a network of criminal fences where they usually receive 25 percent of the ticketed value. The fence then either sells the merchandise to the local population or, depending on the product, back to legitimate retailers.

The more entrepreneurial and computer savvy criminal e-fences their stolen goods online where they have access to a global market 24 hours a day, 7 days a week. They use all the latest tools that technology has to offer, just as we do. No retailer is immune from the ORC epidemic; if there is a consumer demand for a product, that business will be targeted.

These professional criminals have turned retail theft into a lucrative business and transformed what law enforcement used to refer to as petty theft into a new form of organized crime.

When one thinks of organized crime, the first image that comes to mind is a vertically integrated criminal organization with a formal leadership structure like we see in the movie The Godfather or the television series The Sopranos. But what we’re dealing with is a non-traditional form of organized crime that is structured more like a terrorist cell. So when we apprehend one group and its leaders, it does not disrupt or effect the operations of other groups. The only common links between these groups are the criminal fences they conduct business with.

There is also a theory among intelligence experts that some organized retail crime groups are fund raisers for terrorist organizations.

To help shed more light on this topic, the following is a historical perspective of organized retail crime as I experienced it as well as our experience at Limited Brands of building an ORC team from the ground up, including our strategy and results.

Historical Perspective

Many loss prevention professional have asked how long organized retail crime has been in existence. To be perfectly honest, I don’t think anyone really knows, but I can share with you when organized retail crime first hit my radar screen.

In the early 1980s, a group called the Rhode Island Gang traveled throughout the Northeastern United States stealing high-value merchandise from department stores. I remember seeing a video of the team in action when I worked for Lord & Taylor in New York City. They used the same method of operation as today’s crews—the distracter occupied the sales associate, the lookout watched for loss prevention or sales associates, the booster took the product off the hangers and concealed it in a shopping bag, and a mule removed the stolen goods from the store and took it to the getaway vehicle. They flawlessly executed the theft and I remember thinking to myself, “These guys are really good.”

I never had the opportunity of investigating the Rhode Island Gang but, in the mid-1980s while I was a loss prevention manager at Watertower Place in Chicago, I worked an investigation that involved an entire family. There were thirteen adult crew members in all, including moms, sisters, daughters, and uncles.

This group ran a boost-and-return shoplifting operation. They stole merchandise and then returned it for cash. Yes, back then we gave cash back even without a receipt. They also stole our paper credit documents and used them to make fraudulent returns. They were doing so well that they rented a motel room in Cicero, Illinois, to store all their stolen merchandise. (For you organized crime trivia buffs, Cicero is the city Al Capone moved to escape the reach of the Chicago police.)

This group returned the stolen product for cash refunds all over the Chicago market. Their downfall was the boost-and-return scheme itself—it had no legs. It was only a matter of time before store associates began to recognize them.

Our team apprehended two of the crew members in our store using counterfeit refund documents. One of the suspects gave up the hotel storage room during our interview. They were arrested and search warrants were executed. All thirteen family members were arrested, and I had concluded my first organized retail crime investigation. It was 1987, and these crews were still few and far between, but all that was about to change.

Organized Retail Crime in Specialty Retail

In the early 1990s when I was the vice president of loss prevention for Ann Taylor, I received a call from an New York Police Department (NYPD) detective. He informed me that he had identified a criminal fence in Queens that was selling our product. My New York regional LP manager, Ed Kunkel, who is currently vice president of LP for Areopostale, and I worked with the NYPD on this case and what was to be many more organized retail crime investigations.

When the search warrant was executed, we couldn’t believe our eyes. The place was jammed packed with merchandise from every local New York retailer. This fence operator made available use of every square foot of his warehouse/store. There was everything from a jeans department to a children’s department. All the leather jackets were high hanging, so that the “sales associate” would have to pull down your size. They were just protecting their high-value merchandise. There was a cash wrap with a register to record the transactions. Their return policy was clearly posted in two different languages—“NO CASH BACK.” There was also a makeshift fitting room and a layaway department.

The most revealing aspect of this raid was that merchandise from a California retailer was being sold in this Queens, New York, criminal fencing operation. There were cartons that were being shipped from all over the country to this location. This was more than just a local operation. We were now dealing with a very professional criminal element that was national in scope.
We filmed the entire operation in what became the first known video footage of a retail fence location. It turned out to be great awareness and educational material that was used to demonstrate the gravity of this issue.

An interesting point of note was that the locals surrounding the criminal fence were upset with the police for closing down their neighborhood store. I heard one resident tell a detective, “Why don’t you leave them alone. They’re not doing anything bad. Go catch a drug dealer.” The local population viewed this store as providing a service and not as a criminal operation, which is an important point to remember when conducting a criminal fence investigation.

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During this investigation, the district attorney asked if we had any theft records to help support the investigation. What we were collecting at the time clearly was not good enough. That prompted us to start filing police reports on every theft over $1,000. We also started collecting ORC-specific data, which helped us to begin identifying very specific crime patterns. These crime patterns are still relevant to this day for mall-based specialty retailers:

  • 80 percent of the thefts are from the front of the store,
  • 75 percent occur on Thursday, Friday, and Saturday, and
  • 75 percent of the thefts occur after 2:00 p.m., when the store is at its busiest.

This was valuable information that we quickly shared with our stores. The stores teams were now more aware of when they were most vulnerable to organized retail crime thefts and could adjust staffing or at least be more alert. The awareness contributed to many theft prevention success stories.

Partnering with Other Retailers

At Ann Taylor we didn’t have a dedicated team to investigate organized retail crime, so we joined forces with Lou Granda, then vice president of loss prevention for Brooks Bros. We jointly conducted a number of successful organized retail crime investigations over the next few years.

In 1995 I was asked by the National Retail Federation to be part of a retail/law enforcement panel discussing the topic of international shoplifting gangs. We showed the criminal fence video to the amazement of the audience, who were all seasoned LP professionals. It was at this time that I met King Rogers, who was vice president of loss prevention for Target at the time. Rogers became the first executive to create an ORC-specific department. The information Target shared with the industry contributed much to our knowledge about organized retail crime.

In 1998 we hit the jackpot. Granda and I worked in collaboration with the Queens district attorney and the NYPD on an investigation called “Operation Clothes Out” that concluded with coordinated raids on five criminal fence locations in Corona, Jackson Heights, and Flushing. The locations included three residences, a beauty parlor, and a store front. In addition to the large law enforcement contingent, there were also twenty LP professionals participating in the raid.

The investigation was directed by the Queens District Attorney’s Office and the NYPD’s Garment Center Task Force with assistance from the police departments from the following cities: Cheektowaga, New York; Brentham, New Jersey; Warwick, Rhode Island; Chicago, Illinois; and Rehoboth, Delaware. These were the cities where we had actively filed police reports that were linked to the stolen goods that were being sold in the fence locations.

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Our strategy was starting to pay off. Ten fence owners and operators were arrested, millions of dollars worth of product were recovered, and the criminal fences were shut down. The Queens district attorney held a press conference that was covered by all the local New York City media. Our retail shrink in the northeast declined significantly.

Building an Organized Retail Crime Team

Organized retail crime awareness and investigations remained top of mind when I moved to Limited Brands. Limited’s stores were reporting large-scale thefts and Paul Jones, the senior vice president of loss prevention, had the foresight and vision to see the growing organized retail crime threat and create an ORC department. I was really energized when he asked me to take over the direction of that department.

It was tough going in the beginning. Given that organized retail crime was a relatively new discipline within the LP function, we went through a period of trial and error before we starting getting things right.

The first thing we did was conduct a full diagnostic of our current structure. We established a data-collection process to identify crime patterns, searched for the right investigative talent, explored the right technology, produced educational material, and started networking with law enforcement. There was no manual on organized retail crime for specialty retail so we wrote and continue to write the book as we go. Running an ORC department was more complex than we first thought. We clearly needed to develop a comprehensive organized retail crime strategy that addressed the right issues.

Our strategy is comprised of eight key components—mall operations, fence operations, cyber crimes, education, supply chain, legal, legislative, and law enforcement partnerships. Following is a brief description of each component.

Mall Operations. Based on intelligence and data analysis, our investigators conduct surveillances to identify professional shoplifters targeting our stores. Once they identify a crew, they will observe them stealing and continue the surveillance out of our store and to the vehicle. Once the crew has filled their van with stolen product, law enforcement, who has already been notified, apprehends the entire crew in their vehicle.

Fence Operations. We devote a lot of time and energy to fence operations because we know that we can really disrupt the supply-and-demand equation at this point. Putting the fence out of business accomplishes many objectives—no fence means no customers and no one for the shoplifting crews to sell their merchandise to. We locate fences in many different ways, including tips from informants, associates, and friends, investigator shops, and information from law enforcement.

5_copy_copyCyber Crimes. Fences are not restricted to just brick-and-mortar locations, but now also exist on-line as is termed “e-fences.” This is a growing channel for selling stolen merchandise. The crews usually receive 25 percent of a stolen item’s value from the fence. The fence usually sells the product for 50 percent of the value, but items can go for about 70 percent of their value on on-line auction sites, where sellers have relative anonymity. Our investigators diligently match large known theft reports to on-line auction sales looking for leads.

Supply Chain. Our ORC team works in close partnership with our supply-chain LP team because we have learned that the same fence who sells stolen cargo also sells stolen goods from our stores.

Education. We are very passionate about education, not only within our own organization, but within the retail industry as a whole as well as the law enforcement community. One of our first educational projects was a law enforcement information guide that includes a CD on the subject. We also sponsor and conduct ORC seminars for law enforcement.

Legislation. We work closely with our government affairs department as well as trade organizations to help educate politicians on the value of ORC legislation. This year President Bush signed the first ORC legislation, HR 3402, which established an Organized Retail Theft Task Force at the FBI and the creation of an organized retail crime database. This is a big win for our industry.

Legal. We deploy a duel legal strategy. On the criminal side, when we apprehend professional shoplifters or shut down fences, we want to ensure that they receive the maximum penalty, including restitution. Clearly there is a value to putting these criminals out of business. On the civil side, we want to make our company whole, so we also sue for damages.

Law Enforcement Partnerships. Limited’s ORC team works very hard to develop great partnerships with law enforcement, because without them we can’t stop vehicles, raid fences, or obtain subpoenas for Internet records.

Executing the Strategy

In the early stages of our organized retail crime program, one of the biggest challenges to executing our strategy was taking the investigation beyond our four walls. Heretofore, LP training and culture emphasized that we should never leave the store. Investigators were taught to apprehend the suspect after the last point of payment and before they left the store, period. But we were now dealing with a tougher adversary who required us to change our tactics.

There are no boundaries in organized retail crime. It takes a different mindset to investigate professional criminals as opposed to petty shoplifters or employees. We could not make real progress until we changed that investigative paradigm. It took a little time, but the team did overcome this challenge and started racking up a number of big-time cases across the country. Million dollar fences, quarter million dollar e-fences, and $40,000 mall apprehensions.

Success in organized retail crime is heavily influenced by how well we partner with law enforcement and navigate through the halls of justice. In an effort to get to the next level, we acquired the best talent we could find from the law enforcement community. To lead the team, Limited hired Paul Kay as the director of ORC. Kay was a detective in the Organized Crime Bureau of the New Jersey Attorney

General’s Office where he investigated traditional and non-traditional organized crime groups, narcotics, and terrorism. He was the lead investigator in the Conrail Boyz investigation, which the media dubbed as the “Last Great Train Robbery Gang in American History.” In addition, Kay holds a law degree from New York University Law School and MBA from Farleigh Dickinson University.

We first became acquainted with Kay when Limited participated in an investigation called “Operation Retail.” In this operation, ten retailers partnered with the New Jersey Attorney General’s Office to open up a fence location in that state. This investigation will be discussed in greater detail in Part II of this article in the March/April issue.

We also hired Kevin McAlister as our ORC manager. McAlister is a twenty-year veteran of the NYPD where he was a lieutenant in the Legal Bureau during Bill Brattons tenure as police commissioner. During this time, the NYPD delivered historic crime reductions by employing the Comstat process. McAlister was the legal bureau representative at many Comstat meetings. He was also a practicing attorney after he left the NYPD.

With the addition of these two talented professionals, we created the right blend of experience to take Limited’s organized retail crime team to the next level. In the March/April issue, we will detail the successful tactics that are currently used by our organized retail crime team and share our ORC-specific training program.

To read Part 2 of this two-part series, “Organized Retail Crime: Executing the ORC Strategy” click here.

 

This article was first published in 2007 and updated December 2015

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