BY JENNIFER LIPNER
Accountants classify losses from theft rather euphemistically as part of “inventory shrinkage.” But everyone knows what that usually refers to: lost revenue due to theft.
While the everyday, garden variety shoplifter is a perennial thorn in any merchant’s side, focusing solely on the lone thief diverts attention from a much larger and more pervasive threat to a store’s profitability: organized retail crime. Think of it as shoplifting on steroids.
The uptick in ORC is responsible for the changing statistical landscape of retail inventory shrinkage. According to the 2017 National Retail Security Survey from the National Retail Federation and the University of Florida, the value of merchandise taken in the average shoplifting incident is $798. In 2014 it stood at only $318. The report indicates that shoplifting has exceeded employee theft and is the largest component of overall shrinkage.
Just what makes ORC “organized”? Security experts distinguish between the individual who takes advantage of an inattentive sales clerk and the ringleader of a group engaged in large-scale theft that traffics in stolen goods. There are different models of ORC, a few of which were described recently during a webinar presented by Protection One, a division of ADT security, which used actual cases to illustrate its points.
One concept resembles a pyramid. Detective Miguel Garcia of the Miami Dade Police Department describes the first rung as “boosters.”
“Boosters are individuals or a group of people that go out, target and steal consumer goods — clothing, over the counter medications, perfume and the like — and ‘fence off’ [hand off the goods to their boss]to a secure location and make money,” Garcia says. On a good day, boosters might steal between $700 to $1,200 worth of goods.
The boosters are paid by the “fencers,” who then sell the goods to the next-level fence, who in turn sells them to yet another fence — or to ordinary (often unsuspecting) retail establishments. At each level, a markup is applied, which generates significant income for those involved. Some fences may have more than one network of boosters working underneath them.
Garcia cites a recent case in south Florida when a theft ring was busted and some $15 million in stolen medication confiscated. The investigation began when a woman was apprehended stealing diabetic test strips from a local pharmacy.
After agreeing to become a confidential informant, the woman introduced her fence to an undercover officer, which ultimately led to arrests that brought down the entire operation. Code-named “Operation OTC,” the investigation uncovered a sophisticated network, involving people from across Florida.
Sergeant Leopoldo Fuentes, a colleague of Garcia’s, strongly emphasizes the necessity of retailers and law enforcement working together to thwart ORC.
“Without industry support, we would have been unable to conduct the investigation,” Fuentes says. “A lot of the information we needed came from store loss prevention people.”
When ORC traffics in higher ticket items, the potential ramifications can be far more impactful — and may even affect public safety. “ORC relative to the jewelry industry, due to the price points we deal in, often involves other criminal activities such as money laundering, drug cartels, the funding of terrorism and various underworld dealings,” says Mark Neapolitan, senior director of loss prevention at Signet Jewelers.
Elaborate counter measures are necessary to combat this level of sophistication. Signet’s loss prevention department has 24 managers, each of whom oversees security for some 130 locations. Signet is one of the largest retailers of fine jewelry, operating over 3,300 locations in the United States and Puerto Rico under several familiar names including Kay Jewelers and Jared-The Galleria of Jewelry. The company’s LP staff performs a wide range of security-related activities, including offering seminars in jewelry identification and jewelry investigation to law enforcement.
Neapolitan points out techniques used by jewelry thieves, some of which are similar to other types of retail fraud, while others are specific to jewelry; they include grab and run, burglary, distraction theft and credit fraud. Internal theft can also occur at jewelry repair locations or in the store.
An especially noteworthy case involved a series of armed robberies that occurred from January 2015 until June 2016 at Signet locations throughout the South. Early on, the female suspect targeted was dubbed the “diamond diva,” and was thought to be part of a criminal cell.
After the first few incidents, analysis performed by Signet LP staff and the FBI detected several patterns. In each case, the suspect entered the store when only female employees were on duty and no customers were present. After asking to see some merchandise, the offender produced a handgun, ordered the employees to the back and bound them. She then took their showcase keys and stole several pieces of merchandise.
During each incident she wore a wide-brimmed hat to obscure her face; only her manner of dress varied from instance to instance.
However, advanced video technology made it possible to see outside the store and determine the color and make of the getaway vehicle. Rapid dissemination of this information was made possible by effective coordination with law enforcement at the local, state and federal levels, and also through the Jewelers’ Security Alliance, a trade organization that shares security related information throughout the industry.
Eventually a robbery occurred in which the suspect’s face was exposed. The video was immediately pulled and shared among all parties. National TV networks broadcast it, and within one week arrests were made of the suspect and her cohorts.
“It’s a misnomer in loss prevention to feel that information cannot or should not be shared. This hurts you, it doesn’t help you,” Neapolitan says. “The more sharing there is between parties, the greater the amount of new information that can be generated.” ORC makes this is especially crucial, since cells often operate over several states and jurisdictions.
This level of coordination was instrumental in busting a much larger cell operating out of Detroit. Known as the Red Wing Gang, it consisted of close to 100 members committing “smash and grabs” from New York to Wisconsin during 2015 and 2016. The mutual sharing of intelligence was instrumental in 26 arrests, with the potential of more in the future.
Security experts say that ORC is spreading to other product areas. This growing problem underscores the importance of security people from this branch of retail to consider a more coordinated, multifaceted approach to loss prevention.
In addition to the jewelers’ alliance, the Coalition of Law Enforcement and Retail, formed in 2008, promotes the formation of partnerships between merchants and law enforcement agencies. The coalition claims a number of high profile members, including Target, CVS and Under Armour. read more
With Hurricane Irma approaching our State, the Florida Retail Federation and our merchant program Florida Bankcard Solutions would like to take a moment to remind you of some recommendations to help protect your merchant processing account.
IN ADVANCE OF THE STORM:
AFTER THE STORM:
As always, please call us with any questions or assistance you need. If you are processing credit card transactions with Florida Bankcard Solutions, the customer service number is 800-563-5981 option 2.
Most important, please be safe during this storm as it approaches the state and stay tuned for updates from the Florida Retail Federation as we have staff in place at the State of Florida’s Emergency Operations Center.
By Mark Mathews
As the “retail apocalypse” canard continues to grab the odd headline in the media, the data and the facts are consistently telling us quite a different story: a story of an industry in transition, but still growing. The most recent retail sales figures released by the Census Bureau were up a robust 4.2 percent year-on-year in July. Every month this year has seen a steady increase in sales over the same period last year.
Nonetheless, we keep hearing about record-level store closings and how this portends doom for the retail industry. But we’ve consistently argued that this data is drawn from a biased sample. IHL Group just published a report that offers a thorough and complete debunking of the main false premise supporting the retail apocalypse myth. Their data shows a net increase in store openings of over 4,000 in 2017. In fact, for each company closing a store, 2.7 companies are opening stores.
To dive deeper into IHL's new research, watch their recent webinar: Debunking the Retail Apocalypse.
Across the broad spectrum of retail sectors, IHL Group’s data shows that none are closing more stores than they are opening. Even in the supposedly beleaguered department store sector, just as many businesses are opening stores as are closing them. According to IHL’s data, 751 brands are increasing their store counts versus 278 that are reducing store counts. On a percentage basis, 42 percent are opening stores, 43 percent are holding steady and only 15 percent are showing a net decrease in stores. Some apocalypse we’re suffering through.
As we have consistently asserted, overall the retail industry is healthy. When you look at individual sectors, businesses or regions, there are clearly areas that are challenged. The fallacy occurs when one looks at those exceptions and extrapolates them to represent the norm. Every industry experiences turnover and change and companies are consistently having to adapt their business models to new realities.Retail is no different. It is a dynamic, fast-paced, highly competitive industry that is going through a period of rapid change. Consumer behavior, abetted by technology, is forcing retailers to adjust to this change at a speed that is unprecedented. In this sort of environment, some businesses will struggle but others will adapt and exciting new businesses will spring up to take the place of those that can’t. What remains clear amidst all this noise is that the store is as relevant and important a part of the retail experience as it ever has been. The IHL data makes this case quite clearly — and the consumer is telling us the same thing. Almost 80 percent tell us they are visiting stores as frequently or more frequently than last year. Interestingly, this number goes up by 5 percent when you sample Millennials and Gen Z. Don’t bet your shirt on the death of retail, or you’ll be forced to shop for a new one.
According to a new report from global research and advisory firm IHL Group, U.S. retailers are opening 4,080 more stores in 2017 than they’re closing and plan to open an additional 5,500 next year. The report, “Debunking the Retail Apocalypse,” identified grocery retailers as among the three fastest-growing core retail segments, with 674 stores expected to open.
The other two fastest-growing core retail segments, the report found, were mass merchandisers such as off-price retailers and dollar stores, with 1,905 stores expected to open, and convenience stores, with 1,700 stores.
IHL’s research reviewed 1,800-plus retail chains with more than 50 U.S. stores in 10 retail vertical segments. The firm discovered that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017.
“The negative narrative that has been out there about the death of retail is patently false,” asserted Greg Buzek, president of Franklin, Tenn.-based IHL. “The so-called ‘retail apocalypse’ makes for a great headline, but it’s simply not true. Over 4,000 more stores are opening than closing among big chains, and when smaller retailers are included, the net gain is well over 10,000 new stores. As well, through the first seven months of the year, retail sales are up $121.6 billion.”
Other research has pointed to the overall decline of grocery stores, at least in their traditional form, in favor of niche concepts and ecommerce solutions. Additional findings from IHL’s report include:
“Without question, retail is undergoing some fundamental changes,” added Buzek. “The days of ‘build it and they will come’ are over. However, retailers that are focusing on the customer experience, investing in better training of associates and integrating IT systems across channels will continue to succeed.” read more
By REX NUTTING
Retail goods are cheaper, but we’re spending the savings on expensive health car
The brick-and-mortar retail industry is in crisis. For many old-line retailers, sales and market share are plunging fast. The most obvious explanation for their distress is the rise of online shopping, but some analysts mistakenly point to another trend: “Shoppers are choosing experiences over stuff, and that’s bad news for retailers.”
Instead of purchasing a couch, we’re going to Paris! Or maybe buying avocado toast.
One of these hot takes in the media even came with a provocative (and completely erroneous) graphic claiming that experiences now account for 67% of spending, compared with just 3% for clothing.
The reality is more mundane: We are spending a smaller portion of our budget at the mall, but the money we’re saving is mostly going for the most expensive health care in the universe.
It’s probably true that many of us yearn for something more than a pile of possessions that will never love us back, but the cold, hard truth is that Americans are purchasing more things today than ever before — more vehicles, more clothing, more housing, more health care, more financial services, more food and more electronics. More of almost everything, including couches and trips to Paris.
If you’ve heard these stories about the shift away from material things and toward experiences, you might be shocked to learn that retail spending hit a record $1.4 trillion in the second quarter. Retail spending has increased in 30 of the past 33 quarters. We still love to buy stuff.
The problem for traditional retail isn’t that we’ve fallen out of love with filling up our lives and our houses with things. (It’s still true, as comedian George Carlin said, that the meaning of life is finding a place to keep your stuff.)
The problem for retailers is that prices are falling for many retail goods such as clothing, electronics, appliances, furniture, tools, luggage, toys and many other things. That is killing the bottom line for traditional retailers, who get less revenue per unit sale but still have to pay the fixed costs of rent and payroll.
For consumers, on the other hand, falling prices are a godsend, because we can buy even more stuff and still have some money left over to spend on other things.
It would be great if we really could afford to shift our spending from the boring things we need to the fun things we want, but in reality most of the money we are saving due to cheaper clothes and cheaper gasoline is going for goods and services that no one would call fun: hospital bills, financial services, rent, and prescription drugs.
$1 trillion a month
An incredible amount of money is spent on personal consumption — more than $1 trillion every month. A little less than half is spent on stuff at retail stores, and much of the rest is spent on housing, health care, financial services, education, communication and other services.
Over the past 20 years, there has been a revolution in our spending patterns. Since 1997, Americans have shifted a significant portion of their spending from physical things like autos, clothing and petroleum to services like health care, rent and internet access.
Twenty years ago, for instance, 5.4% of total personal consumption expenditures went for motor vehicles and parts, but today that accounts for just 3.6% of consumer spending. Clothing was 4.5% of our budget in 1997; today it’s 3%. We spent 6.6% of our budget on groceries in 1997, but only 5.3% today.
On the other hand, spending on health-care services was 14.5% of consumer spending in 1997 but has grown to 16.9% today. In addition, prescription drugs have gone from 1.5% of spending to 3.4%.
We are spending a bit more on foreign travel, entertainment and eating meals at restaurants compared with 1997, but these categories still represent a tiny fraction of our total spending.
It’s quite true that annual spending on the experience of foreign travel has risen by $104 billion since 1997, but spending on home furnishings like couches and washing machines has increased even more — by $110 billion. And spending on prescription drugs has risen by an incredible $374 billion.
At the margin, we are spending a little bit more on having fun than we did 20 years ago, but most of our money still goes for necessities, not experiences.
A new study (PDF) from Texas-based digital savings company RetailMeNot, Inc., finds almost half (47 percent) of small business retailers struggle to keep up with the latest trends in mobile marketing.
Small Business Retailers Struggling with Mobile Marketing
There is a continued increase in small retailers’ investment in mobile marketing strategies. But often the challenge for these retailers is to quickly adapt to changing consumer demand, reports RetailMeNot’s mobile marketing study titled “How Retailers Are Adapting to New and Evolving Mobile Marketing.”
“Part of the evolution of marketing includes a growing reliance on upcoming technology. Often these advancements are created and adopted by consumers so quickly, retailers often find themselves unable to keep up,” wrote RetailMeNot in a quote from its study.
About nine in 10 small business retailers said they will increase their investments in mobile (92 percent) or social (89 percent) advertising in 2017. However, one in 4 (25 percent) of these retailers said they do not have the ability to tie their mobile marketing efforts to in-store sales. This means they are not able to gauge the true success of their current mobile marketing tactics. They are also missing out on key opportunities to provide customized offers or push notifications to help complete the shopper’s journey.
Mobile Marketing Partnerships Helping Track In-store Sales
One way retailers (53 percent) are overcoming the challenge of tracking or tying their mobile marketing efforts to in-store sales is partnering with marketing companies that have expertise in this area. Partnerships with mobile marketing companies like RetailMeNot are also helping retailers provide mobile offers to customers through owned and partner apps.
“Marketers should not underestimate the influence mobile marketing has on purchases made in all channels — in-store, online and on mobile devices,” said Marissa Tarleton, chief marketing officer of RetailMeNot, Inc, in a release announcing the study. “Equally as important is the ability to attribute sales back to mobile marketing efforts,” Tarleton added.
RetailMeNot’s study was conducted by global insights and strategy consultancy Kelton Global via email invitation and an online survey between April 14 and April 20, 2017. read more
by David William
Good news for retail came out of the Census Bureau yesterday. July turned out to be not just better than expected but also the month with the biggest rebound in retail sales all year, rising 0.6% for the month and 4.2% since July 2016. What’s more, revised data for May and June show a brighter picture than preliminary estimates had indicated, eliminating what had appeared to be a decline in retail sales.
"Finally, retail sales showed some life," Robert Frick, a corporate economist at Navy Federal Credit Union, was quoted as saying yesterday.
So should the commercial real estate industry feel cheered by the news? Well, yes and no.
For those who have a stake in retail properties, there is still reason for caution.
A breakdown of the retail data shows that the July uptick is driven largely by motor vehicle sales (up 1.2%) and e-commerce (up 1.3% for the month – quite possibly boosted by Amazon Prime Day, which took place July 11 – and up 11.5% from a year earlier). Although the success of e-commerce can benefit players in the industrial segment of the commercial real estate industry, given the significance of warehouses and distribution centers for e-tailers, it may not be such comforting news for those with a stake in traditional retail properties.
Somewhat obscured by the big picture, some brick-and-mortar categories did not do as well as overall retail sales might indicate. Sales at electronics and appliance stores, for instance, were down 0.5% from June to July and 0.9% from July 2016.
Other categories showed mixed findings, such as department stores, which were, a bit surprisingly, up 1% for the month (but down 1.3% for the year). Similarly, sporting goods, hobby, book and music stores were up 0.3% for the month but down 4.2% for the year. (read more)
By: Ely Razin
A new survey conducted for NRF shows small retailers have nearly caught up with large merchants in making the switch to chip-and-signature credit cards — even though virtually half say the cards would be more secure if easy-to-forge signatures were replaced with a secret personal identification number.
The survey found that 60 percent of small bricks-and-mortar retailers had installed chip card readers by this spring and another 10 percent expected to have done so by July, bringing the total so far to 70 percent. The number is expected to reach 81 percent by the end of the year. (Online retailers aren’t affected because the chip doesn’t work unless the card is physically present.)
That compares with 86 percent of mid-size and large retailers surveyed last year who said they would have chip readers in place by the end of 2016, with 99 percent planning to do so by the end of this year.
With each chip reader averaging $2,000 when installation and other costs are factored in, small retailers have generally lagged behind larger retail companies with deeper pockets in the changeover from traditional magnetic stripe cards.
Small retailers have made the switch despite concerns the new cards don’t provide all the security they are capable of: Of the 750 surveyed for NRF by research firm GfK, 49 percent said their businesses would be more secure if credit cards required a PIN, which is standard in most parts of the world where chip cards are used. Only 16 percent disagreed, with the remainder neutral.
Nonetheless, 63 percent said their businesses could not afford to risk increased liability for fraudulent transactions, which retailers have faced since a change in card industry rules took effect in October 2015. In the past, banks paid fraud costs when a card turned out to be counterfeit; the cost has now been shifted to retailers if the card has a chip but the retailer doesn’t have a chip reader.
Not all affected small retailers are making the move: The survey found 19 percent have no plans to adopt chip cards, with 55 percent of them saying it is because their businesses are not at high risk for credit card fraud.
The survey results are not surprising. NRF has said for years that chip-and-signature cards are far less secure than chip-and-PIN. The chip makes it more difficult to create a counterfeit card, but counterfeits are still possible and the chip does nothing to prevent lost or stolen cards from being used. As we’ve often said, a chip without a PIN is like locking the front door but leaving the back door wide open. A PIN alone could stop most credit card fraud without the need for a chip — or the expensive new equipment needed to read a chip.
Virtually all U.S. banks have refused to include PINs on their credit cards, choosing to keep transactions on lucrative signature processing networks run by Visa and Mastercard rather than open them up to the dozen or more competing networks that can process PIN transactions.
Beyond the PIN issue, chip cards do nothing to keep card data from being stolen from computer systems. The chip transmits an encrypted code that confirms that the card is not counterfeit, but the actual account number and other card data are still transmitted in the clear.
Despite those shortcomings, the change in fraud liability rules effectively coerces many retailers into adopting chip cards: A coffee shop can afford to lose the cost of a doughnut if a customer uses a counterfeit card, but a jeweler selling rings that cost thousands of dollars can’t take the chance.
Overall, U.S. businesses are being forced to spend $30 billion to switch to chip cards that fall far short of the advances in security that are needed. That’s money that could be better spent on encryption, tokenization and other technologies that actually keep card data from being stolen in the first place. If the card data can be made secure, the physical cards become much less of an issue.
Retailers have been demanding truly secure credit cards for years. It’s time for banks to deliver. read moreBy Mallory Duncan