• Organized Retail Theft – Sometimes We Can’t Test Our Way to Safety

    by John Spink • July 6, 2013 • Blog • 0 Comments

    ffi blog V1 No18 cameraOrganized Retail Theft (ORT) is mass shoplifting and is a type of Food Fraud that results in a public health vulnerability that costs businesses billions and erodes consumer confidence.  Since it involves authentic packaging and genuine product…we can’t test our way to safety.  This is an immense fraud opportunity that requires a holistic, all-encompassing preventative approach.

    Organized Retail Theft.  For the lawyers, ORT is defined in Federal Law as shoplifting more product than for personal use.  The broader Organized Retail Crime (ORC) includes cargo theft, warranty fraud and other forms of retail fraud-related activities.  ORT is a major concern for industry since it costs billions in lost product and lost sales from product not being on the shelves, and there is a public health vulnerability to the stolen goods.  In 2011, the Government  Accountability Office (GAO) reported on the “billions” of dollars of genuine product stolen and reintroduced to commerce… though more precise estimates are hard to come by, as with other fraud and counterfeiting activities.  ORT is perpetrated by professional shoplifters, or boosters, and the act is referred to as boosting.  The stolen goods are sold to a person referred to as a “fence”, and when sold online this is called e-fencing.  In many cases the fences provide a shopping list for the boosters to steal.  The GAO report specifically identified infant formula as a major target but any products that are high value – especially high value and small size – are targets.  Think of small, fairly expensive food or beverages you see at a corner gas station market.  Food products are definitely ORT targets.

    How it Works.  Fences ask boosters to shoplift specific items.  The boosters are paid pennies on the dollar for the product that they stole.  The fences are connected to some retail outlet or scam that sells the product.  In some cases they sell this through traditional fencing venues such as flea markets, pawn shops, or privately owned stores (30% market value).  In other cases they sell it through online sales sites (70% market value).  They can also conduct return fraud to the retailers (100% market value plus tax!).  Generally, returned food products are not returned to store shelves by the retailers, so that product is either written off as a loss or, at best, counted against a return or damaged-goods allowance. In some sophisticated operations the product is “cleaned” (retail markings removed, such as date codes, lot numbers, and store price tags) and the product is re-packaged to re-enter the wholesale market.

    Why It’s a Public Health Vulnerability.  The GAO report mentioned, “However, it is not currently known if the second-hand sale of these goods has actually resulted in a public health problem.”  It also stated “As a result [of the shoplifting], there is limited assurance that these products were lawfully acquired and are stored and handled according to the manufacturer’s recommendations.”  The key point is that we don’t know how that product has been handled.  The genuine product may have been swapped out with counterfeits.  In many instances the date and lot codes could have been changed, which would make traceability impossible.  Even worse, fraudulent lot codes could be added, which could result in the recall of the wrong products!  All this leads to a wide range of public health vulnerabilities and, if allowed to fester, can erode consumer confidence – and sales along with it.

    Consumer confidence is really a key to any countermeasure.  Product protection needs to be conveyed in a way that enables that confidence.  I’m just returning from a trip where I presented at the GFSI China Focus Day .  There have been a wide range of incidents in China related to infant formula that have eroded consumer confidence.  I read about infant formula now being sold in pharmacies to benefit from the more regulated and secure supply chains there.  Infant formula is still allowed to be sold in other retail outlets but it will be interesting to watch how consumers in China respond to this drastic step.  This effort is to not only increase the security of the supply chain but to increase consumer confidence.

    Regardless of how ORT is legally classified or prosecuted by FDA, FBI, or others, ORT is a Food Fraud public health threat that requires a non-traditional Food Fraud prevention approach.  Seek out insight from a wide range of disciplines that can provide best practices.  Keep focused on reducing your overall fraud opportunity.  JWS.

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