Retail Crime Up Thanks to Down Economy

It’s no secret that when the economy tanks, retail crime goes up. Especially when it comes to crimes such as shoplifting, returns fraud and use of stolen credit cards.

This recession is no exception: According to the Retail Industry Leaders Association’s 2008 Current Crime Trends Survey, retail crimes are trending up and will likely continue to increase through the rest of 2009.

Of the 52 major U.S. retailers that participated in the survey, which was released Dec. 1, 84% reported an increase in theft/amateur shoplifting; 76% reported an increase in financial fraud; and 80% reported an increase in organized retail crime. Retailers also reported a sharp uptick in robberies and burglaries in 2008.

“All of the crimes that retailers experience are trending up,” says Paul Jones, vice president asset protection, for RILA. “Taking a shotgun view of this, 2009 looks like it will be a real challenge for retailers: External theft, internal theft, robberies, break-ins, bad checks, stolen credit cards -- all of that type of stuff that hurts the bottom line.”

Jones says “anytime we see an economic decline, those people who abuse the system, who commit crimes, tend to come out in droves. So logic would say that we’re going to see some problems.”

What’s particularly disturbing, he says, is that retail crimes are increasing in areas of the country where they aren’t normally seen in high numbers. The survey shows that opportunistic criminals are moving beyond the urban centers and into a number of rural areas. States reporting a sharp uptick in retail crime include Arizona, Colorado, Iowa, Kansas, Missouri and New Mexico.

One reason retail crime is spreading to these rural areas, Jones says, is that local law enforcement agencies have fewer resources for combating the problem. And now, with the ailing economy, many municipalities are cutting the budgets of their local departments.

Also disturbing is the fact that many of these crimes can be linked to organized retail crime. Organized retail crime, or ORC, involves sophisticated crime rings that steal and stockpile huge quantities of merchandise that is sold later to unwitting buyers. The stolen merchandise is sold through flea markets, swap meets, pawn shops -- and increasingly through Internet auction sites such as eBay.

RILA says retailers lose billions of dollars each year due to ORC schemes. In the 2008 Current Crime Trends Survey, 80% of retailers reported an increase of organized retail crime (the report does not say how these retailers identified crimes as being part of an overall organized crime effort).

“Unlike simple shoplifting or other crimes of opportunity, ORC growth attributed to a slowed economy is less likely to decline as the economy improves,” RILA’s report states. “The criminal enterprises associated with ORC become reliant on the revenue derived from the commission of this crime and thus will likely continue to commit these crimes as the economy improves.”

Spike in retail returns fraud

Another alarming trend is the rise in retail returns fraud, in which criminals fraudulently return goods for profit. For example, there’s receipt fraud. This is when falsified, stolen, or reused receipts are used to return merchandise.

Then there’s price arbitrage. This is when the criminal steals the price tag from a lower-priced item, puts it on a higher-priced but similar looking item, buys it at the lower price and then returns it at the higher price.

Another popular form of retail returns fraud is “wardrobing” or “renting:” This is where a customer buys merchandise for an occasion – a dress for a prom, a video camera for a wedding, a big-screen TV for a Super Bowl game -- with the intent to return it when the event is over.

According to the National Retail Federation's 2008 Returns Fraud Survey, released in November, retailers will see a total of about $219 billion in returns from sales made in 2008 – a 19% increase over the $178 billion in returns recorded in 2007. Of those returns, about $11.8 billion will be fraudulent – an increase of about 8% over last year’s figure of $10.9 billion.

What’s more, retailers will see approximately $47 billion in returns just for the 2008 holiday season – an increase of about 15% over 2007’s figure of $40 billion. Of those holiday returns, about $3.54 billion will be fraudulent.

And with the economy in a tailspin and people more hard-pressed than ever to make ends meet, loss prevention experts say it is only going to get worse.

Fortunately, most retailers are able to react quickly to the increase in these trends and counteract them. For example, in the case of returns fraud, most major retailers now have software that enables them to track returns activity and flag those transactions which appear suspicious.

“A majority of the national or larger retail chains have some system in place to monitor or manage returns transactions,” says Joe LaRocca, vice president of loss prevention for the NRF. “It might be manual on the store end and automated back at headquarters – but most of the retailers I’ve dealt with – and I’ve been in the industry 20-plus years – have always had systems, either third party or proprietary, to help manage their returns.”

The key challenge, he says, is finding ways to combat these types of fraud without any detriment to the customer experience. You have to make it easier for your good customers to make legitimate returns – while at the same time making it difficult for the bad guys to make fraudulent returns, he notes.

(Want to learn more about retail returns fraud? Multichannel Merchant has an upcoming article on this topic, so keep it tuned here!)