What is ‘organized retail crime,’ exactly?

Among the many reasons why the topic of organized retail crime confuses people is that the term, also known as ORC, means different things to different stakeholders.

Some retailers in recent years have reported escalating levels of shrink, and the industry generally attributes that to rising ORC incidents. Yet there’s no consistent understanding of this specialized kind of crime among law enforcement or the industry itself, experts say. Even the researchers who spent a year working on a special report on organized retail crime for the National Retail Federation say the imprecision makes it nearly impossible to determine the scale of the problem.

Retailers have poor visibility into where their lost inventory has gone, and theft in general and ORC in particular are getting blamed, without much evidence, according to Brand Elverston, who has worked in retail asset protection for more than two decades, including at Walmart. Industry surveys don’t offer much clarity because the people filling them out perceive organized retail crime in a myriad of ways, he said by phone. Meanwhile, the same surveys have indicated for several years that overall shrink rates haven't changed much.

“ORC has never been totally defined as long as I’ve been in retail, and it raised its head probably about 2006-ish,” said Elverston, who now works as a consultant. “There needs to be an industry generally accepted term. But there isn’t one.”

Groups like the NRF and Retail Industry Leaders Association have struggled to define and quantify the issue, with mixed results. The ICSC, which represents malls, borrows from the definition employed by Homeland Security Investigations, a division of the U.S. Immigration and Customs Enforcement, also known as ICE: “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.”

Organized retail crime “is not a singular incident, event or individual crime,” according to an email from NRF spokesperson Mary McGinty. Theft related to it includes “shoplifting, cargo or supply chain theft, burglaries, e-commerce and gift card fraud, return schemes and more,” she said, noting that it involve networks of thieves that acquire stolen goods for resale. Reporting varies, in part because sometimes what seems like simple shoplifting turns out to be part of an ORC enterprise, she also said.

“These crimes may be reported or recorded differently by retailers or law enforcement, and not until intensive and extensive investigations are conducted could be determined to be part of ORC activity,” she said.

Indeed, there isn’t a single definition of organized retail crime, among industry groups or anywhere, according to Mark Skertic, managing director at K2 Integrity, the risk advisory firm that worked with the NRF on a special report on the topic last year.

Mary McGinty

Spokesperson, National Retail Federation

“That kind of speaks to one of the problems,” he said by phone. “There’s no agreed-upon — ‘Here’s how it happens. Here’s how we report it. Here’s what we have. What’s the difference between somebody shoplifting and somebody taking part in ORC.’ There is a difference, but I think that difference is not always really clear.”

That problem extended to the firm’s special report itself, released in April 2023. The report includes the caveat that “there is a lack of consensus among retailers, law enforcement officials and researchers on various aspects of crimes that constitute ORC.”

That lack of consensus has made measurement difficult. In December, the NRF removed a key statistic from the K2 report, after Retail Dive’s discovery that the number didn’t apply to organized retail crime, but, rather, to total industry shrink, or inventory loss. Meanwhile, a $70 billion estimate from RILA from 2019 applies to all types of theft, not just ORC, and, moreover, is dismissed by some experts as not credible.

The NRF has simply stopped estimating the financial impact of organized retail crime, telling Retail Dive that reports from its members likely reflect an undercount because many fail to recognize ORC; don’t realize that losses through their supply chain or via e-commerce are related to it; and often don’t report shoplifting, fraud or other non-violent incidents to police.

“The ability to determine, record and identify losses come down to the individual retailer’s resource capabilities and even law enforcement’s investigative resources into various channels of loss,” McGinty said.

However, Elverston said that, on the contrary, many loss prevention experts at retailers tend to over-estimate the impact of theft in general and ORC in particular. The answers to its surveys, from which the organization extrapolates data on theft and shrink, are “educated guesses” at best, in part due to loose definitions, he said.

“When you see a video clip of a smash-and-grab, that captures everybody’s attention,” he said. “What doesn’t capture your attention is when you see two auditors in the back of a store that just discovered a multimillion dollar accounting error. When was the last time you saw anybody bragging about that online?”

The text of a Congressional bill aimed at combatting organized retail crime does cite a 2019 NRF estimate on ORC’s financial cost as “approximately $720,000 per every $1,000,000,000,” or less than one-tenth of a penny for every dollar in sales. That bill defines organized retail crime, in part, as “involving groups of individuals specifically targeting retail stores, often by using violence or threats of violence to subdue employees and shoppers while robbing stores of their most valuable and easily diverted merchandise” and elsewhere as involving the sale “of those illegally obtained goods through physical and online retail marketplaces.”

The bill also notes that two-thirds of retailers report “an increase of violence during the commission of retail theft.” It would establish an Organized Retail Crime Coordination Center under the U.S. Department of Homeland Security’s investigative arm, which could help coordinate what Skertic says is a dearth of information. NRF’s McGinty also said this aspect of the proposed legislation would help collect information from retailers and local, state and federal law enforcement agencies to improve reporting.

“When the NRF came to us and said ‘Can you help us look at this problem,’ one of the things we immediately realized is that we will never get our arms around it completely because there is no database, there’s nothing that tells me that a certain number of thefts occurred within a certain store at a certain strip mall on a certain date,” Skertic said. “We built our own internal ORC databases — we just started tracking instances — but even then, the data gets really dirty, really fast.”

Shoplifting vs organized retail crime

When asked for their definition of organized retail crime, many loss prevention experts, prosecutors and policy makers emphasize, as Skertic does, that it differs from shoplifting.

Shoplifting – that is, incidents involving one or two thieves who are not store employees – remains the most common type of theft from stores, according to an updated crime report from the Council on Criminal Justice released in January. While, like shopping, shoplifting has bounced back from the low levels of the pandemic, in most major cities it’s on a downward trend, according to CCJ.

"The data gets really dirty, really fast.”

Mark Skertic

Managing Director, K2 Integrity

Organized retail crime, by contrast, is defined by the NRF as “the large-scale theft of retail merchandise with the intent to resell the items for financial gain. ORC typically involves a criminal enterprise employing a group of individuals who steal large quantities of merchandise from a number of stores and a fencing operation that converts the stolen goods into cash.”

Rather than being taken for personal use, the stolen goods are often sold via online sites like Amazon, at flea markets and other venues, including other retailers, according to the NRF. The goods are not necessarily taken from stores, but may involve cargo points like trucks or the fraudulent use of credit cards, gift cards or returns, the NRF also says.

“We did not do as much on cargo theft as I would have liked, frankly, because we just didn’t have the budget or time to do it,” K2’s Skertic said. “But I think cargo theft is a huge part of this.”

The intense focus on organized retail crime has extended to law enforcement, which in some cases targets the higher-ups in fencing operations rather than on low-level shoplifters. In a special report on organized retail crime this month, CNBC reporters embedded with law enforcement described theft rings that netted millions of dollars for the bosses. The ORC crimes didn’t usually involve the high-profile smash-and-grab incidents often associated with organized retail crime, and most of the theft the reporters witnessed involved lower-level shoplifting, according to their report.

State laws on organized retail crime

More than 30 states have their own organized retail crime laws , according to the Organized Retail Crime Resource Center, and most if not all of them also attempt to distinguish shoplifting from organized retail crime.

In practice, however, that distinction isn’t always made and has led to racial disparities in at least one state. In Texas, ambiguity in the penal code has led some police to arrest petty shoplifters for ORC-related crimes, according to research from Southern Methodist University, using state data. Black and Hispanic arrestees were charged for the more serious crime more than white arrestees, those researchers also found.

In Arizona, lawmakers are contemplating stiffening penalties for organized retail crime, which is already on the books. State Rep. Analise Ortiz described the existing law’s description of ORC as involving “the intent to resell or trade the merchandise for money or for other value” as “incredibly broad.”

“This could mean a mother in desperate need, who steals something with the intention to trade it for survival necessities like baby formula or diapers, could be prosecuted for ‘organized retail theft’ when she is a far cry from a sophisticated, conspiring criminal,” she said by email. “Second the [stipulation that an ORC perpetrator] ‘uses an artifice…or other article’ is also overly vague. I have heard stories of prosecutors calling a pair of jeans an ‘artifice’ to facilitate shoplifting because someone put something in their pocket.”

“Moreover, increasing the criminal penalties here will have no deterrent effect because the root cause of why someone is being driven to steal remains unaddressed,” she also said.

The lack of a consistent definition complicates the ability to distinguish shoplifting from ORC, according to Trevor Wagener, director of the research center and chief economist at the Computer & Communications Industry Association, who studies these issues. Adding to the confusion is an evolution of phrasing. Law enforcement once favored the term “organized retail theft” to differentiate it from organized crime as perpetuated by the Mafia and other such enterprises, but increasingly joins the industry in calling it “organized retail crime,” he said. That, too, is inconsistent.

“I would say that over the past decade, law enforcement and the retail industry have tended to move toward more agreement, with more law enforcement authorities increasingly treating ORC as an organized crime activity, or at least organized crime-adjacent,” he said by email. “But there is enormous variation by individual law enforcement authority/department/jurisdiction.”

Theft vs shrink

Retailers reporting to law enforcement or industry group surveys need greater clarity around not just the term “organized retail crime,” but also about their inventory losses more widely, experts say.

For example, after expanding its use of RFID technology, Macy’s recently discovered that employees — including longtime staff considered highly trustworthy — were walking off with much more unpaid-for merchandise than the department store had previously suspected.

The NRF estimates that theft by employees accounts for about a third of all shrink; organized retail crime is a subset of external theft that accounts for another third, with the scale of ORC unknown, according to the group’s most recent estimates.

But the lack of visibility into inventory at most retailers is leading them to overcount not just ORC but theft of all types, according to asset protection expert Elverston.

“I don’t buy it. Two-thirds of your losses cannot be isolated in theft in aggregate,” he said. “Now, you know, in certain isolated stores, okay. But when you roll those numbers up to a corporate level? Nah.”

"Two-thirds of your losses cannot be isolated in theft."

Brand Elverston

Retail asset protection expert

In the last couple of years, retailers have shined a light on shrink and theft in part because margins were tight, according to some analysts. Already, that seems to be dimming. At Target, one of the retailers most vocal about shrink and its impact on operating margin, executives in November said shrink rates were better in the period than they had anticipated. In March, executives said the retailer had made progress throughout 2023 and that they expect shrink to be about flat this year.

Elverston expects that, as shrink rates improve at Target and elsewhere, there will be a corresponding relaxation of any effort to unearth the real causes of shrink, which he said would be best identified through widespread use of effective risk-mitigation strategies including RFID.

“Shrink is cyclical. It’s a roller coaster,” he said. “It always improves because when it gets bad enough, we focus — and guess what, no surprise, it actually gets better. And then we take our foot off the brake, and we focus on other crap. It’s Whack-a-Mole, almost. We need shrink visibility. RFID provides the intelligence that we do not have today, as in, how many went out what door at what time? Did I ever even receive it? Is it a supply chain issue or is it an in-store issue? Was it never shipped? We don’t have answers to those questions now.”