How does ORC impact businesses? Read more to find out.
Click on your favorite financial news source and you’ll likely come across a story about how shrink is negatively impacting the health of businesses across the country. Shrink refers to a company’s lost, damaged, or stolen inventory and it can be a huge drag on a company’s profitability. No retail category seems to be spared as various companies from Target to Dollar Tree to Home Depot to Dick’s Sporting Goods have all experienced the adverse effects of organized retail crime (ORC) to their bottom lines. ORC involves sophisticated criminal groups who target retail stores for theft, fraud, and other criminal activities.
When we think of ORC, we often think of smash and grabs or flash mob thefts where groups of criminals chaotically ransack stores. One video of a Nordstrom in Los Angeles went viral when dozens of masked robbers made off with large amounts of designer handbags estimated to be worth anywhere from $60,000–$100,000. It was the second time the store was victimized in three years.
However, while instances like the one in Nordstrom are shocking and garner the most attention, the majority of organized retail crimes are less flashy. They are strategically planned with a precise and coordinated sophistication with everyone playing a specific role.
Tony Sheppard, a loss prevention consultant with over 25 years of experience working for multiple large retailers in their security and organized retail crime units told Newsweek that, “with the increase in organized crime, the sheer volume of product that an individual or group can take in any given day has just gone crazy.”
In fact, according to the Retail Industry Leaders Association (RILA), the impact of ORC’s hit on retailers is a thudding $69 billion uppercut of stolen goods.
The huge loss of inventory translates into damaging and sometimes crippling financial losses against the business’s balance sheets. However, the monetary loss of the item isn’t where it ends, ORC can have other negative long term ripple effects on the business’s profitability.
When it comes to ORC, they are very deliberate in what they target. They are looking for goods that are in high demand that can be resold for healthy profits. Sometimes stores can be hit multiple times after the stolen stock has been replenished. Often, the criminals will target similar goods at multiple retail establishments within a concentrated area to steal the most product in the shortest amount of time. This can create a lack of specific goods in the local market making it difficult for residents or consumers in the area to find highly sought after items. This can either lead to an absence of certain goods in the market or create potentially higher prices for those coveted in-demand items.
While price increases can sometimes be a result of low supply and high demand, many times businesses mitigate some of the loss from theft by passing along some of the costs to the consumer. This results in higher prices for shoppers in the short term but can potentially lead to consumers having negative feelings towards the business in the long term.
Many retailers made headlines for their decision to close locations citing ORC losses as a driving factor. Just last year Target announced the closing of nine stores across four states, including locations in New York, San Francisco, Seattle, and Portland.
In a statement released by Target, they make clear the fiscal toll of ORC theft but explained the decision wasn’t entirely rooted financially. “We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests and contributing to unsustainable business performance,” the company said. “We know our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all.”
As retailers combat ORC, they are increasingly locking up common everyday products from toothpaste and razors to over-the-counter medications. This creates another layer of friction for the shopper who may encounter more wait times and less access to inspect and compare goods. The combination of inconvenience and lack of choices and ability to tangibly engage with inventory has eliminated the one major advantage of brick-and-mortar stores had over online shopping. Those customers are now spending those in-store dollars online. And for smaller businesses that don’t have an online sales presence, this can be a disastrous disadvantage.
For businesses that do have an online presence, they still feel the pinch by way of additional costs related to the rising uptick in returns. With lack of goods and the ability to compare and handle products in the store, customers are choosing to replicate the store experience at home. This means ordering various products to their home, selecting the item they want, and returning the rest. The price of returns for a business can include the cost of freight which sometimes can be more expensive than the items themselves. As a case in point, Amazon has a policy where on occasion, they will issue refunds to customers and ask consumers to keep or gift the item they would like to return because it is more cost efficient to do so.
Security and law enforcement experts point to weak punishments as a contributing reason as to why ORC numbers seem to be on the rise. Many local laws penalize based on theft value amounts, so criminals know to take just the right amount of inventory to stay below those thresholds and stiffer punishments. In an effort to circumvent harsher penalties while still maximizing the amount of goods they steal, ORC groups often will hit multiple stores in the same area targeting the same products. It’s a loophole that they utilize to create stealing sprees with maximum results.
In addition, many retailers employ a zero-tolerance policy prohibiting employees from interfering with any type of crime in an attempt to keep their employees and customers safe from potential escalation. For criminals, it can be a frictionless criminal experience.
While these policies make ORC a relatively low risk, high reward proposition, there are various ways businesses can protect themselves.
Addressing organized retail crime theft prevention takes a comprehensive approach. One that involves collaboration amongst retailers, law enforcement, and the community. Businesses can do their part by ensuring they have a multi-pronged security system that offers real-time surveillance, use of cutting-edge technology like AI, as well as creating layers of security ranging from the store itself, to the parking lot, to adjoining areas. By taking these steps, businesses can take necessary steps to protect their assets, customers, and personnel while successfully disrupting ORC’s attempts to steal their inventory and their profits.
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