Earlier this year, the Attorney General Alliance (AGA) conducted an important webinar highlighting the risks of organized retail crime (ORC) to retail organizations, employees, and customers. ORC presents substantial dangers in both the online and brick-and-mortar settings, necessitating cooperative efforts between businesses and government actors to combat this illicit activity. Retail clients should be aware of pandemic-driven upticks in ORC, increased safety risks to employees and customers, and proposed solutions like the INFORM Act that may impose new business obligations in the effort to prevent ORC.
An Increase in ORC
ORC refers to acts of theft by professional criminals both in-store and online. ORC is much more serious than casual shoplifting and is closely linked to dangerous crimes like human trafficking and money laundering. Participants in ORC are generally extremely well-organized and intentional. In stark contrast to the casual shoplifter who likely engages in his or her crime of choice no more than a few times per week, organized retail criminals can easily hit several stores in a single day. Moreover, because their aim is resale, rather than personal use, these criminals tend to target in-demand products. These include cosmetics, fragrances, allergy medications, razor blades, designer clothing, batteries, drills, over-the-counter drugs, and baby formula.
While ORC has existed for decades, shifts in purchaser behavior during the coronavirus pandemic appear to have dangerously increased its felt effects; retailers, for one, are taking a substantial financial hit. Scott Draher, an asset protection and safety executive for Lowe’s, noted that while maybe 25% of all Lowe’s losses in 2015 resulted from ORC, that number is now around 60%. Although the exact cause of this spike in ORC activity is unclear, it may be that pandemic-era buyers, in their efforts to avoid in-person shopping, are more willing to purchase products from questionable sources, creating increased resale opportunities for ORC participants.
The increase in demand for certain goods—even from uncertain sources—has also fueled another troubling ORC trend: An increase in violence. It appears that ORC criminals are becoming more brazen and aggressive. Many will do anything to get out the door with their stolen goods, including harming people in their way. Employees, in particular, have been regularly threatened with mace and other weapons. According to Ben Dugan, part of the ORC investigations team for CVS Health, the key driver of this increased aggression is the desire to meet escalating demand; the recent increase in online sales of the products targeted by ORC criminals, about 30%, roughly mirror the increase in theft.
ORC also creates troubling consumer safety risks apart from the risk of altercation with a fleeing criminal. Consider an organized retail criminal who steals and resells baby formula. This sensitive product may not be stored the right way prior to resale, or the thief may tamper with the contents or change expiration dates on the packaging. More generally, third-party sellers are simply not held to the same product integrity and safety standards that would otherwise apply. These risks are particularly high in the context of online sales, where consumers have less information about the product and the seller—and thus less opportunity to obtain legal redress.
Any conversation on ORC would be incomplete without a discussion of potential solutions—a fact to which the AG Alliance webinar panelists were clearly attuned. Notably, panelists like Tania Maestas, Chief Deputy AG for New Mexico, quickly dismissed the idea of a uniform ORC statute as the panacea to address this type of criminal activity. This comes as no great shock, since the types of ORC seen and the way ORC is committed can vary significantly across states. Panelists appeared to favor collaboration, including between state AG offices and businesses, over a legislative one-size-fits-all solution. Specific solutions were also discussed.
First, one important potential solution to ORC is felony charge enhancement, since, in most states, ORC offenders are generally charged only with misdemeanors. Most state anti-theft laws were originally drafted with one-time offenses in mind. Thus, they do not reflect the seriousness of ORC. What is most important is the ability to aggregate offenses across jurisdictions, even just within one state—something more and more states are allowing. Without this aggregation, individual incidences of ORC almost always fall below the felony threshold. This means states are unable to prosecute offenders effectively or to establish meaningful deterrence to multi-member and often very profitable criminal organizations.
Second, the INFORM Act is a new piece of legislation that Congress is expected to take back up in the coming days. According to Ben Dugan, consumers are often misled by bulk sales, thinking high volume means legitimacy. In reality, bulk sellers have no way to get new products in bulk at 50% of the cost of manufacturing. Thus, lots of sales at a substantial discount is actually an excellent indicator of stolen goods. While the INFORM Act is narrower than other regulation, it still poses risks discussed above. The manner in which Congress might mitigate these risks is yet to be seen.
Retailers should stay privy to new trends in ORC, including the ways these crimes are being committed, the types of products likely to be targeted, and the level of violence to expect. Moreover, retailers should anticipate future criminal legislation or consumer safety regulation as government actors work to craft a new legal framework that prevents ORC since it is a dangerous form of organized crime with the potential not only to harm a retailer’s bottom line, but to physically injure employees and customers.
Crowell & Moring will continue to monitor legislative and regulatory changes in this space.