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Retailers intensify investment in technology to tackle organized theft, violence

Retailers are reporting an uptick in violence linked to organized retail crime so they are increasing investments in technological solutions and strengthening collaborations with law enforcement agencies, according to experts.

Organized retail crime, which involves multiple perpetrators stealing from stores and distribution operations, threatens retailers' margins. Home Depot Inc., for example, said a rise in organized retail crime increased shrinkage and was partially responsible for a 31 basis point drop in its gross margin year-over-year in the third quarter of fiscal 2019.

"[Retailers'] profitability is kind of going away when more and more of this activity is taking place," said Christopher McGourty, executive director of the National Anti- Organized Retail Crime Association, an organization that works with retailers to develop solutions to combat organized theft.

The ongoing problem cost retailers an average loss of over $703,320 per $1 billion in sales in 2019, making it the fourth consecutive year of losses coming in above $700,000, according to the National Retail Federation, or NRF.

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In addition to the financial cost, the issue also has safety implications. Sixty-eight percent of retailers reported a rise in violence by organized retail crime offenders in 2019, according to the NRF survey. That is up from 49% of retailers in 2018. In some instances, these groups attack people in stores and use weapons such as stun guns, NRF's Vice President of Loss Prevention Bob Moraca said in an interview.

Several state laws have increased the dollar amount of stolen goods that counts as a felony, which is contributing to the organized crime problem, experts explained. The change allows perpetrators to steal higher-valued goods without the risk of a felony charge. Meanwhile, the ease of selling stolen goods online and the opioid crisis are exacerbating the situation, according to experts.

Deploying technology

To fight the problem, retailers are utilizing different strategies including investing in technological solutions such as radio-frequency identification tags in stores, and GPS to track cargo in transit, according to Dr. Read Hayes, director of Loss Prevention Research Council, an organization that works with more than 70 retailers, including Walmart Inc., and Home Depot.

"There's a lot of [research and development] and evaluation going on in [finding] better ways to protect merchandise in the stores," Hayes said.

Walmart declined to comment for this story. Home Depot did not immediately respond to a request for comment.

Retailers are also improving their surveillance systems to aid their loss prevention efforts, NRF's Moraca said.

"Every good retailer out there worth their weight now has [an] excellent digital video system," Moraca said, adding that the surveillance systems now have some artificial intelligence components that can detect unusual movements and send video clips alerting the retailers' loss prevention teams.

"The more intelligent video analytics is now helping the situation," Moraca said.

Fifty-six percent of retailers in the U.S. are allocating additional technology resources to combat organized retail crimes, while 44% are increasing their loss prevention budgets, according to the NRF.

"Now [retailers] are investing more in security and IT and all these other things to protect [themselves]," McGourty said.

Both Dollar Tree Inc., and Target Corp. are using technology and employee training to combat retail crime, according to spokespeople from the two retailers.

"We are continually evaluating and enhancing on-premise security and surveillance systems, as well as our associate training," Dollar Tree said in an emailed statement.

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The return and resale game

Organized retail crime groups sometimes defraud retailers by returning stolen goods as legitimate purchases in exchange for gift cards. A "highly effective" way to crack down on return fraud, McGourty said, is to utilize return authorization systems such as Verify Returns. The system which is provided by Appriss Retail, a California-based software company, alerts retailers of unusual patterns in customers' return behavior. The system also alerts retailers when customers exceed a set return limit.

Working with major third-party websites such as eBay Inc., where stolen products are sometimes sold, is also a vital part of tackling the problem, NRF's Moraca said. Retailers work with dedicated teams from third-party websites to track and investigate suspected criminal activity. However, tracking stolen products across multiple websites can prove difficult, Moraca added.

"We believe collaboration and cooperation is the best way to address organized retail crime, which victimizes not only retailers but consumers and online marketplaces like eBay —undercutting our efforts to ensure a safe and fair shopping experience for all our users," eBay said in an emailed statement.

On the investigative front, retailers are collaborating with law enforcement agencies and retail groups to form organized retail crime associations. These associations are platforms to share intelligence on organized retail crime groups operating across county and state borders, Moraca said.

"The problem has gotten that big where these [groups] have self-developed to help thwart the problem," Moraca said.