You're watching CCTV footage of shoplifters from the inside of one of
several retailers across the country.
And if you've shopped recently in your local Home Depot, Walmart or CVS,
there's a chance your shopping experience was met with the rippling
effects of this exact issue: locked plexiglass panes, motion-sensing
monitors and security cameras placed everywhere.
Retailers and retail trade associations are characterizing retail crime as an
epidemic.
"Theft is an issue. It's higher than what has historically been.
If that's not corrected over time, prices will be higher.
In 2021, retail shrink, which refers to inventory losses due to theft, unknown
loss and administrative error, accounted for $94.5 billion, as compared
to $90.8 billion in 2020.
But beneath the surface, there is another side to the story: the available
data is unreliable, a prominent concern of criminal justice advocates.
"On balance, I think it's likely that all of these crime trends from, you
know, sort of petty theft and organized shoplifting rings all the way up to
various categories of violent crime have, on balance, been blown out of
proportion by people with an agenda either to get more eyes on their content
or to get more funding for institutions that they prefer, like police."
Critics worry that the story is not so straightforward.
Regarding theft in its stores, the CFO of Walgreens himself said in a call with
investors in January 2023,
"You know, maybe we cried too much last year when we were hitting numbers that
were 3.5% of sales."
The revelation has some onlookers casting doubt on the true magnitude of
the issue. Despite disputes over data, the crisis has given rise to legislation
like the INFORM Consumers Act.
CNBC spoke to retailers, trade associations, asset protection
professionals and criminal justice advocates to dive deeper into the much
more complicated, murky issue behind those clear, locked plexiglass panes.
"Theft rings that scout, plan, and execute high-value heists.
Three people were arrested; all are charged with robbery.
Our investigators seized more than $3.8 million worth of stolen goods."
The National Retail Federation and Retail Industry Leaders Association, two
of the leading groups in the retail space, have all pointed to retail crime
as a growing issue.
Just listen to two executives from these organizations talk about it.
"It's become a significant problem from both the habitual offenders who are
stealing every day, have 50 to 70 encounters with law enforcement or
retail security personnel.
And then the organized retail crime rings are very sophisticated."
"Retail theft is not just impacting the retailers themselves.
It has a trickle-down effect that will impact the consumers, whether that's
store closures, increased pricing."
The definition of ORC varies by jurisdiction, but the Department of
Homeland Security defines it as, "The association of two or more persons
engaged in illegally obtaining items of value from retail establishments,
through theft and or fraud, as part of a criminal enterprise." The NRF
estimates that in 2021, ORC cost retailers an average of $700,000 per $1
billion in sold goods.
"I've been doing this for 32 years, and I can honestly tell you we've not seen
anything to this degree in the past.
We saw a large uptick probably about ten years ago, and then again five years
ago, and then really during the pandemic, we saw a massive increase."
"And it's also important to note that these numbers are Covid numbers.
So they're outliers when you're looking at data."
Crime investigators' concerns run even deeper than theft.
"Homeland security investigations, the FBI, they're finding more and more
evidence that organized retail crime is linked to other significant criminal
activity to include human trafficking, child exploitation, drug and weapons
trafficking. We're talking about something much bigger than that."
On the side of retailers, billions of dollars have been poured into asset
protection and loss prevention — or AP and LP for short — in the last several
years.
"We have a team of investigators that work the organized retail crime problem.
It's fair to say that we're investing millions of dollars across the chain
into different types of solutions."
Home Depot's stores have seen a dramatic transformation over the years.
Along with hiring 150,000 employees between 2020 and 2022 to support its
stronger efforts, anti-theft measures have become more
technologically-sophisticated.
Everything from locked metal barriers to motion-sensing monitors and locking
smart carts. One of Home Depot's more advanced developments in LP tech is RFID
tags. Lowe's recently launched Project Unlock, a similar technology to Home
Depot's RFID tags.
Basically not activating the product.
The product will not function until it's been purchased at the point of
sale. We think this is something that can really help curtail ORC, not just
for Lowe's, but really across the industry.
So that's the difference between a lot of the other solutions that we've tested
in the past. They weren't cost-effective, so it was expensive
technology. And, you know, that's got to be absorbed somewhere.
CVS and Walgreens have both implemented stronger measures in their stores.
Aisles of plexiglass panes, cameras at self-checkout, and security guards
monitoring activity in-store.
While the advances in AP and LP have been beneficial in stopping bad actors,
it does come at the expense of the consumer shopping experience.
"These kind of anti-theft programs that they started, a lot of customers have
been complaining about how that's kind of cut down on that customer experience,
and it's bringing them to competitors, where you can buy your toothpaste
online, get it shipped to you within two days, and you don't have to kind of
go through this frustrating process of going to a crowded store, waiting for an
associate."
"It's not a good shopping experience, right?
I don't even like going into a retailer and having to wait for somebody to
unlock product to get it so I can go buy it.
So we've tried to stay away from that as much as we could, but in some areas
we just were losing so much, it was not profitable at all for that category, and
we actually didn't even have product on the shelf to sell to our customers."
As investments in AP and LP continue, retailers are forced to grapple with
newfound customer inconvenience as physical and technological barriers
evolve.
So billions of dollars are being lost, cutting into retailers' bottom line.
Media coverage around the issue ran rampant in 2021.
And while advocates of the issue have painted an alarming picture, the other
side — criminologists, civil rights organizations and criminal justice
educators — are warning that the story is not so straightforward.
For starters, shrink does not solely account for instances of crime.
It includes inventory that's lost, damaged or stolen by employees and even
vendor and administrative error.
"Some retailers are going to be going shelf-by-shelf and actually counting
items that they have, checking it against the items that they sold, and
the difference is the shrink number.
But what happened to those items is unclear.
It's not like when you're walking out of Target with detergent, you're saying,
"Hey, I'm stealing this detergent.
Nobody actually knows if that detergent was stolen, if it was damaged or if an
employee stole it."
"At every step of the way, we have the potential, not only for inaccurate
reporting, but also for motivated reporting, where various actors in the
system may have reasons why they would choose to make the numbers look bigger
or smaller than they are.
And so it's I think it's fairly clear that we just don't have precise figures
when it comes to all kinds of criminal justice statistics, including here,
retail loss through-through theft."
By some numbers and categories, the asserted rise of retail crime does ring
true. Organized retail crime has risen.
Busts have turned out in the millions, which largely account for the $94.5
billion number retailers and trade associations point towards.
"It's important to note that organized retail crime is absolutely a concern and
that there's a lot of misconceptions about it.
These smash-and-grab robberies are not actually the biggest part of this.
It's big transnational crime organizations that are getting involved
with organized retail crime, because it's way less risk for way higher
reward."
While ORC has increased on a surface level, the data gets confusing when you
really get down to it.
The definitions for organized retail crime, and the categorizations that fall
under it, vary in different jurisdictions.
In some states, organized crime can just mean a conspiracy between two
people to steal from a store.
For this reason, doubt circulates around whether all of those instances
were truly part of ORC rings.
While retail crime in real numbers has increased, the shrinkage rate has
remained largely the same over the past few years.
The first logical place to look is the data, but as we've seen so far, that is
a complicated can of worms.
Skeptics on the rise of retail crime alike have pointed out the main issue:
the methodology is inconsistent, making the interpretation of any and all data
available, doubtful.
"The idea that there's, you know, somewhere there's this kind of central
database of of relevant figures all the way down to a question as challenging
as, you know, how many times, you know, are stores victimized by-by shoplifting
or by organized shoplifting rings?
We just don't have that data."
Let's dig deeper.
If we look at the trade association numbers, they cite increases across the
board through surveys.
The NRF, for example, conducts yearly surveys, but they do not disclose who
exactly participates in them.
This data is qualitative, not quantitative.
It asks the opinion of LP and AP leaders whether or not they have
observed rises in different categories.
And that's an issue because perceived increases are not the same as
quantitatively-proven increases.
"They're seeing a huge uptick in shrink, and then they're kind of looking at
what's going on in the rest of the criminal justice environment, some kind
of criminal justice reform laws that have taken place in big cities like New
York, and they're also seeing media reports about big smash-and-grab
robberies. And they're kind of saying, 'Well, since we have a big increase in
shrink, it's most likely crime-related rather than something else.' You know,
did employees drop ten more jars of pickles this year than they did last
year? You know, what in the environment has changed that would lead to more
pickles being dropped on the floor, for example?
And the one common denominator that they can find is a shift in criminal justice,
uptick in crime overall and a shift in how- in criminal justice reforms."
Even looking more broadly at data from the FBI — data, which in all fairness,
is only a partial picture, with only 60% of agencies reporting — there have
been decreases in crime as a whole, in some cases even historic lows.
When asked about how data is gathered, RILA struggled to answer.
"How is data gathered?
How do you go about measuring retail crime?
From a retailer perspective, the way that they're organized- calculating
organized retail crime and the impact that it has is, is there- when they-
this is this is a tough one, Jade.
This is a tough one for me."
Retailers Home Depot and Lowe's, on the other hand, were adamant the data was
sound.
"I can tell you that in our world, we know that crime is increasing.
We see it every day in our stores.
Our internal information shows us that that's on a year-over-year basis,
growing at double digit rates."
"And we document every single incident that is observed at any point in our
stores. We can quantify very specifically what our losses are that
are attributed to specifically organized retail crime."
Some doubt has circulated even among retailers themselves, calling back to
Walgreens CFO James Kehoe's statement in January 2023.
On a national level, the story repeats itself: annual government surveys from
the Bureau of Justice Statistics show no recent increase in the U.S.
violent crime rate.
In fact, there have been historic lows.
If we want to get more specific, violent crime has risen, which is an
observed trend for retailers, but only marginally.
But since violent crime is more dramatic and is most commonly seen in
media coverage, the perception is skewed.
It's easier to believe the problem is much more dramatic than it actually is
when you're looking at the worst case scenarios.
"Law enforcement officials in this country are massively under
investigating and under-reporting certain types of crime, largely crime
committed by wealthier people, corporate officials.
et cetera. And significantly over-reporting in the media, certain
other kinds of crime, like retail theft and shoplifting."
Now, if we zoom the lens out even further here, this issue with magnifying
the nuanced reality of crime is a messy subject in a larger political context.
It's another instance in a controversial ongoing trend: Americans
tend to believe there is more crime than there is in actuality.
In 20 of 24 Gallup surveys conducted since 1993, at least 60% of U.S.
adults have said there is more crime nationally than there was the year
before, despite the generally downward trend in national and violent property
crime rates during most of that period.
"I think all of us have probably- most of us have been to stores where we see,
you know, that they lock the doors and only let certain people in, or they put
certain products behind plexiglass."
In 2022, the perception that local crime has increased is at a record high.
So for criminologists and other advocates, their concerns are very real.
The combination of retailers, law enforcement and media hysteria
emphasizing the issue is working, at least as far as garnering attention
goes. The law has responded accordingly, which is its own tangled
web of implications.
"...the scourge of retail theft?"
"A national problem.
You're seeing the videos over and over again of individuals walking in stores
all over the country, taking what they want and walking out."
So far, we've established that interpreting the data is a mixed bag.
And you might be wondering, "Why does this matter, then?" The more the retail
industry lobbies, and the more the media illustrates a problem, the more
the government deems it to be an outright issue.
It's estimated that nearly $15 billion in federal and state tax revenue is lost
to ORC.
Since products are sold illicitly, the applicable taxes from that transaction
in a normal retail setting are not properly collected.
And why does that matter to you?
The average American family will pay more than $500 annually in additional
costs due to ORC's effects.
More than that, corporate cops and law enforcement will be granted more freedom
to pursue the issue.
And this is where the concern for individual privacy becomes more real.
"Increasingly, it's easy for a retailer to get information about what we're
doing in terms of shopping in a brick-and-mortar store and online.
And so, it's not always easy to know, as a customer, how much information
you're turning over to the people that you do business with.
And neither is it easy to know how much of that information they may be turning
over to law enforcement in an effort to combat shoplifting, theft and other
crimes that may or may not be real."
The response by legislative officials and by law enforcement in the last
several years has been deeply involved.
Homeland Security Investigations launched Operation Boiling Point, a unit
specially designed to combat organized theft groups, or OTGs, in October 2022.
The INFORM Consumers Act was passed in December 2022, which would require
online marketplaces to verify the legitimacy of high-volume third party
sellers on their sites.
The Combating Retail Crime Act was passed in October 2022.
On the side of criminal justice advocates, they worry that some of the
legislation surrounding this issue is insinuating a damaging perception:
increasing penalties for theft and arresting and prosecuting more people is
the answer. They point to research that indicates higher rates of incarceration
does not immediately equal reductions in crime.
While this issue of retail crime runs its course, the level of credence among
retailers, trade associations, lawmakers and customers is a delicate
one.
"It's not to say that it isn't an issue, but you also have to be skeptical about
everyone's motivations for lobbying around this issue."