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Exploring the Impact of Organized Retail Crime on the Retail Industry

Organized retail crime (ORC) is a growing challenge in the retail industry. In a 2023 National Retail Federation (NRF) survey, 78% of retailers responded that ORC was more of a priority than one year ago. ORC can lead to decreased profits, store closures, and many retail workers feeling unprepared and wary to go to work. Retailers have responded by increasing security, but security increases can ultimately affect the shopping experience and turn customers away; for example, inventory in locked cases can be an inconvenience and deter customers. In this piece, we will explore the impact of organized retail crime on the retail industry and how retailers have been taking action. 

What is Organized Retail Crime? 

ORC is the large-scale theft of retail goods with an intent to re-sell and therefore is distinct from shoplifting, which covers individual theft for personal use. ORC also involves large-scale product diversion, which involves products being sold through unauthorized channels. ORC is a significant focus for government agencies. The Federal Bureau of Investigation (FBI) referred to organized retail theft as a “gateway crime that often leads us to major crime rings.” ORC’s association with major crime rings shows the scale and scope of ORC and its impacts on the retail industry to be much further reaching than normal shoplifting.  

What are ORC’s Impacts? 

Lost profits 

Lost profit is a notable consequence of ORC for retailers. Through product diversion, products can be improperly sold online for cheaper prices, undercutting retailers’ sales. To combat this diversion, retailers like CVS work to identify the origin of products offered in online marketplaces within their overall ORC strategy.  

ORC also causes lost profits by contributing to inventory shrink, any loss in inventory not through sales. The NRF estimates 65% of inventory shrink is caused by theft, and an estimated $112 billion was lost due to shrink in 2022. Target alone estimated a potential $500 million loss in profitability due to inventory shrink. While these numbers represent total inventory shrink and cannot entirely be attributed to ORC, ORC is a significant contributor, directly affecting lost inventory and profits and forcing retailers to act. 

Store closures 

Increases in ORC have led to retailers closing locations in major cities. San Francisco, the second most ORC-affected city behind Los Angeles, has seen 20 retailers close locations since 2020 in the Union Square Neighborhood. Examples include a Whole Foods Market store, which had experienced high theft, and a Nordstrom store which had pointed to “unsafe conditions for customers, retailers, and employees.”  

While acknowledging many factors have influenced these store closures, Walgreens specifically cited ORC, saying “Organized retail crime continues to be a challenge facing retailers across San Francisco.” Continuing growth in ORC could contribute to additional stores closing across the country. 

Customer and Employee Morale 

ORC is negatively affecting the retail industry by reducing worker and customer morale and safety. Half of retail and grocery workers surveyed reported witnessing a theft or attempted theft between October 2022 to April 2023, while 40% indicated they are scared to go to work due to volatile customer interactions. The survey results convey the significant toll violence and theft can have on employee morale.  

ORC also impacts customer safety. In 2023, 67% of retailers reported a higher level of violence by ORC perpetrators compared to one year ago. This violence can deter customers from entering stores due to safety concerns. While this is a less direct link than store closings or lost profits, the impact on retailers is significant, and organizations are looking for ways to address it. 

What are Retailers Doing to Respond? 

Increasing anti-theft technology 

Retailers have responded by increasing security, including adding locked-up cases for certain items, and introducing anti-theft shopping carts. However, these responses may come at the expense of customer satisfaction. Videos criticizing retailers for locking up low-priced items and showing customers struggling with the anti-theft shopping carts have gone viral on social media. 

While Target’s CEO has stated that customer response to in-store locks has been “positive,” an August 2023 survey found that in response to locked-up cases 26% of respondents would shop elsewhere, while another 26% would shop online. Inventory in locked cases can be an inconvenience and a deterrent for many customers, as shoppers look for convenient and quick in-store experiences, and can potentially cause a 15 – 25% reduction in sales. Retailers must evaluate the pros and cons of security measures that have the potential to alienate consumers. 

Novel deterrents  

Retailers are also combating ORC through new technologies. Home Depot and Lowe’s have both introduced power tools that will not turn on unless properly scanned at the register. Retailers are also looking into implementing wireless access control locks, allowing customers to press a button that would alert employees to remotely unlock a case. These implementations keep the customer experience in mind, and can help stores avoid looking like an “armed encampment,” according to one Home Depot executive. 

Increased security 

Retailers are also responding to ORC by increasing physical security. According to the 2023 NRF survey, 45% of respondents increased their usage of third-party security personnel as a way to prevent theft. In addition to the new point-of-sale-activation technologies in their power tools, Home Depot is also increasing physical security, as Home Depot loses “billions of dollars a year” to ORC. Home Depot’s increased physical security shows that the new technologies are not enough to fight ORC.  

This example illustrates the need for retailers to both combat ORC and preserve a positive customer experience, showing the large-scale impact of ORC and the difficult balance retailers must strike in their efforts to curtail it. 

Future Outlook: Impact of ORC on the Retail Industry 

Going forward, retailers must continue to strike a balance between effective ORC prevention and the store experience, as customers are placing increased value on the entire shopping experience. Some retailers have already begun looking into decreasing security, as Walgreens Boots Alliance global chief financial officer James Kehoe stated during an earnings call, “We probably put in too much, and we might step back.” Retailers must be sure to work to prevent ORC in ways that don’t detract from the customer experience. 

ORC will continue to be an important trend for retailers to monitor, due to the significant negative effects it can have on profits and safety. Retailers must continue to find new and innovative ways to prevent ORC and other theft, while maintaining a positive customer experience and keeping their customers and employees safe. Talk to our retail experts today about ways we can support your journey to protect both your store assets and the customer’s in-store experience. 

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Contributions from Joseph Malandra

Tags: Retail Trends