It may not have the grit and the glamour of film noir, but one of today’s most elaborate strains of organized crime drains about $30 billion from US retailers annually, and without much consequence.
Organized retail crime—ORC, for short—affected 97% of the 67 American retailers surveyed by the National Retail Federation in 2015, and four out of five of them said that it’s getting worse. Though only crocodile tears may be shed for corporate giants like Walmart and Target, the massive theft of items like teeth-whitening strips, laundry detergent, and energy drinks across the US can really hurt small businesses, and shoppers’ wallets. In some cases, it is even limiting access to much-needed items.
In ways most consumers don’t even realize, this type of crime “always comes back around and hits the everyday shopper,” says Chris McGourty, founder of the National Anti-Organized Retail Crime Association. What’s also not well known: This type of crime is happening more often, getting more sophisticated, and is almost impossible to prosecute.
How organized retail crime works
The National Retail Federation defines ORC as large-scale theft or fraud with the intent to resell items for financial gain. It can include everything from smash-and-grabs or the production of counterfeit products, to elaborate inside jobs involving company employees. In increasingly organized ways, fleets of “boosters” (industry slang for shoplifters) target an area and pluck shops dry of crucial yet pricy items—popular goods include baby formula, allergy medicine, and pregnancy tests. Then, goods are listed for sale online on sites like eBay and Craigslist, and on Facebook groups–or simply returned to the retailers they were stolen from, a category of hoodwinking called “return fraud.”
In 2014, “return fraud” during the holidays cost major retailers $1.9 billion, and 71% of those surveyed by the National Retail Federation experienced return fraud by ORC gangs. The process usually involves producing counterfeit receipts and returning stolen goods for hard cash, store credit, and gift cards that can be converted to money in Coinstar machines or online.
“They know what they’re doing. They have this down to a science,” said Robert Moraca, the vice president of loss prevention at the National Retail Federation. “The insult is that the retailer has stuff stolen from them and then they have to buy it back.”
Consumers are paying up, too, since repeated theft can drive up prices from both the manufacturer and the retailer, and an estimated $1.6 billion in sales tax revenue (pdf) is lost across the US annually on these stolen goods. In 2004, California lost $228 million of such revenue, while Texas lost $153 million and Florida $106 million, according to the Coalition Against Organized Retail Crime.
“That’s money lost to schools. It’s not just a regional problem—it’s more of a national epidemic,” says McGourty, who spent nearly 10 years investigating these crimes for TJX Companies, Inc., which owns Marshalls, T.J. Maxx and A.J. Wright.
Return fraud sucks for businesses, and it might seem relatively harmful for the average consumer. But some types of ORC can actually be dangerous: fake or expired over-the-counter drugs, cosmetics, and medical supplies can have serious health consequences. In October, three major US government bodies issued a warning about counterfeit contact lenses sold online, which hosted dangerous bacteria and, in some cases, had “lead-based materials that leach directly into the eye.” Prince might have died from counterfeit medicine. Last year, officials in Los Angeles raided a fake detergent operation that sold five-gallon buckets of counterfeit Tide to people online.
Though it’s hard to pinpoint how many ORC cases involve fake goods, the global counterfeit industry is reportedly worth about $500 billion (including counterfeit luxury items), a massive increase from the International Trade Commission’s estimate of $5.5 billion in 1982. Americans are among the most affected, with US retailers eating a $20 billion loss every year because of it, according to the US Department of Commerce.
Buying these items does more than deliver fake products to our doorsteps. It also encourages retail gangs to steal genuine products out of entire communities, putting sick and low-income individuals who need them at risk.
Diabetic testing strips, which retail for about $10 to $20 a box and are needed on a daily basis by diabetics to monitor their sugar, are especially targeted by ORC gangs—a problem that Nick Selby, a Dallas-area police detective, has witnessed among low-income individuals who may not be able to go online when their local stores run out of strips due to theft. “In poor neighborhoods, it becomes a real hardship to try and find these things,” Selby said.
When stores experience continuous losses on the same items, they often stop carrying them all together.
“If all of your diabetes testing strips are stolen out of the store, at some point you can’t charge enough to make that a profitable item,” Selby said. “If you’ve got an elderly person who has to get this, they are going to have to leave your city [if] your local pharmacy stops selling them.”
As a general rule, the FBI doesn’t look at ORC cases valued at less than $150,000—say, the cargo theft of an entire truck of iPhones. Plus, there are no specific laws that name ORC a federal crime. That makes it difficult for police officers to make a case against someone’s widespread theft operation when it stems across state or county jurisdictions (and it often does).
“You kind of have to be able to put the package together as law enforcement,” Moraca said.
Thirty four states have so far passed some sort of ORC-related legislation, some of which pave the way for better cooperation between county-level jurisdictions, but only Michigan considers ORC a felony, punishable up to 5 years in prison.
In several states, a movement to decriminalize nonviolent crimes has also benefited ORC groups. In other words, if a state requires that $1,000 worth of goods must be stolen in order for it to be a felony, thieves might steal $900 worth of items and move on to another state.
“[Prosecutors] want to be able to say, ‘this group stole more than $300,000 over the last four months in different states,’” Moraca said.
Even so, scams that get picked up by federal authorities often have surprisingly low sentences. In November 2016, a man who stole more than $200 million in a credit-card scam was sentenced to a little over five years in prison.
“If you do jail time, it’s really only small time. We’ve kind of created this problem for ourselves because we continue to view theft and fraud as not a major crime,” McGourty said. “It’s the risk-reward factor. If you get caught, there’s not as much punishment for it.”
Organized retail crime might not seem as urgent a threat as armed robberies or drug trafficking. But it’s that type of thinking that is making shoplifting and counterfeiting big business for criminals across the US.