Retail theft and prevention

Retail theft, including organized theft rings, is top of mind at all retail organizations today given that thefts seem to be at an all-time high as we end 2023. The National Retail Federation (NRF) held a lobbying day in Congress, October 26, 2023, and dubbed this day “Fight Retail Crime Day.” It should be noted that shoplifting is not only directed at high-end luxury goods. Goods that are targeted for stealing include price points ranging from high price and high fashion to everyday items, with newer categories including outerwear, batteries, energy drinks, footwear and kitchen accessories. The key attraction for all these goods is their high resaleability.

In this article, we examine the legislation proposed, loss control best practices, and risks of detaining retail criminals in store.

• In the U.S., retail stores lost $112.1 billion from retail theft in 2022, up 4% from 94.5 billion gross revenue lost due to shoplifting and other theft in 2021.
• Shoplifting statistics as of October 2023 stated that shoplifting losses grew 19.4% from 2021 to 2022 and normalized as a share of retail sales dollars; losses to theft increased 10.5%.
• Retailers lost $84.9 billion in fraudulent returns in 2022. As reported by an NRF and Appriss Retail 2022 report.
• External theft (shoplifting, organized retail crime) represents the largest share of losses from retail theft at 37%.
• The top five metropolitan areas affected by organized retail crime in the past year: Los Angeles, San Francisco/Oakland, Houston, New York and Seattle.
• Retailers have been threatening to shut down stores and raise prices if organized retail theft isn’t addressed.
• Nine states have passed new laws cracking down on organized retail theft, and Congress is considering federal action.

There are few legislative actions that may help as well as loss prevention techniques that retailers can employ.

Shutting down stores

According to the NRF, the retail industry is the nation’s largest employer. The industry equates to roughly 14% of the $26.95 trillion gross domestic product or $3.9 trillion annually. Closing stores, especially those of large-box retailers, can deprive areas of both jobs and easy access to a place to buy goods. Thus, there are concerns about lost jobs and the inability for consumers to purchase items they need, such as food, diapers, medications and sundries. The following retailers have claimed to close stores in certain areas due to retail crime:

• In 2023, Target has closed nine stores in four states due to shoplifting; the areas with store closures are New York, Seattle, Portland and in the San Francisco Bay area.
• Walgreens shuttered stores in 2021 claiming it was due to retail crime; those stores were largely in San Francisco.
• Walmart reported closing stores in Porland due to theft in spring of 2023.

Legislation

Right now, there are several legislative measures designed to help retail organizations. The new and proposed laws aim to deter retail crime and go after the leaders of organized theft groups. The NRF created “Fight Retail Crime Day” for a day to advocate for change with congressional leaders. On October 26, 2023, the NRF along with 50 leaders from about 30 retailers went to Washington D.C. to advocate for retail crime laws to be enacted.

Federal level

INFORM Consumers Act

The INFORM Act became effective June 27, 2023. This statute is referred to as INFORM Consumers Act, which stands for: Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers. The goal of the act is to make online transactions more transparent and to deter criminals from acquiring stolen, counterfeit or other unsafe items and selling them via online marketplaces. The Act helps online marketplace users by providing them a way to report suspicious conduct concerning high-volume third-party sellers.

Combating Organized Retail Crime Act (CORCA)

CORCA proposes penalties for theft and calls for a change in the threshold prosecutors must meet before bringing federal cases. At this time, thieves can be charged with federal crimes only if the stolen goods are worth $5,000 or more in a single instance. This Act would allow federal prosecutors to bring cases if the aggregate value of the goods reaches $5,000 or more over a 12-month period. This act is like racketeering or RICO acts.

State/city level

Like CORCA, some of the new state laws and bills allow prosecutors to aggregate the total value of stolen goods over a given time so they can charge repeat offenders with stiffer felonies instead of misdemeanors.

• Multiple states — Stiffened penalties
• Michigan — Organized Retail Crime Initiative
• New York City — Combatting Retail Theft Initiative
• San Francisco — Blitz enforcement operations

Florida changed its law so people can be charged with felonies after they steal an aggregate amount of goods over 30 days. It also added a provision that says a person who takes 20 or more items during five or more instances within a 30-day period can be charged with a second-degree felony.

What else can you as a retailer do? Several prevention techniques are being used across the industry:

• Increased guarding/security
• Closing any secondary entrances to stores
• Limiting self-checkouts to a few items or types of items
• Locking up easy-to-steal and sought-after goods, such as razors, laundry pods, and other beauty and healthcare products
• Along with store formats shrinking in size, having minimal merchandise on the “show room” floor with additional goods in the back of store or available to order online
• Training store employees in de-escalation techniques
• Enhanced detention policies
• Enhanced checkout security procedures
• Engaging in technology solutions, from taking photos of customers upon entry and exit to using software to track a customer’s behavior
  • Additional cameras and RFID scanners
  • Artificial intelligence — used to track shopper behavior

Detention policies

A retailer makes a choice in detention policy whether to: (1) apprehend those who attempt to steal from their stores or (2) ignore the parties suspected of or observed stealing merchandise. Both choices have pros and cons. Detaining shoplifters can help protect revenues, and at times, enhance a retailers reputation as being a tough place to steal from, thus, perhaps deterring thieves from targeting those stores. On the other side of the coin, retailers also must consider potential liabilities of false arrest and possible employee and/or third-party injury if they chose to detain thieves in the act of stealing or those suspected of shoplifting.

In the U.S., due to the value placed on civil liberties and constitutional rights, unlawful search and seizure can lead to suits filed against retail organizations in the event a customer is wrongly accused of stealing. Therefore, the loss-prevention industry has developed six accepted steps to minimize the potential for false arrest claims:

1. The shoplifter must have been seen approaching the merchandise.
2. The shoplifter must have been seen selecting the merchandise.
3. The shoplifter must have been seen concealing, converting or carrying away the merchandise.
4. The detainer of the shoplifter must have continuous observation of the shoplifter.
5. The shoplifter must have been observed failing to pay for the merchandise.
6. When necessary, the detainer must apprehend the shoplifter outside of the store.

Cost of detention

There can be significant costs to your organization to using detention techniques; some can be covered under insurance. These costs can include:

• Personal physical or emotional injury to customers, employees or contractors (i.e., security guards)
• Physical injury to the suspected shoplifter
• Reputational damage and resultant lost business or public relations expense if the detention is alleged as false arrest, if the actions seem to have violated personal rights or if the act of detention involved excessive force
• Potential suits if there is allegation of false arrest
• Lost revenue because of stores being shut down due to any fallout of detention, such as riot/civil commotion or an investigation by authorities
• Damage to the store and inventory

Potential insurance coverage that may respond to costs:

• General liability
• Workers compensation
• Reputational risk
• Crisis management
• Property/strikes, riots, and civil commotion — business interruption

Best practices for detention

1. Employee and security guard training on detention practices should be in place and repeated. As outlined above, training should include using the six observations, also known as the ASCONE protocol:
   • Approach: shoplifter seen approaching the items
   • Selection: shoplifter seen selecting the items
   • Concealing: shoplifter seen concealing the items
   • Observation: the party observing the shoplifter did not lose sight of the shoplifter, was in constant observation
   • Non-payment: the shoplifter did not pay for the items
   • Exit: the shoplifter exited with the items
2. Technology can be an aid in lessening retail theft by serving as a deterrent and/or as an aid in defense:
   • RFID scanners that alert when unpaid-for merchandise is leaving the store
   • GPS tracking on items to follow the path of the goods or see if they show up in a re-sale marketplace
   • Metal detectors at store entrances and exits
   • CCTV positioned at entry/exit and cameras focused on select merchandise
   • Artificial intelligence (A.I.)-enabled technology that can alert guards to potential theft via behavioral patterns (Note: use of A.I. with biometric data collection can cause privacy issues; be sure to understand the technology, what it is capturing and using to ensure privacy laws are not being violated.)
   • A clear policy on apprehension of suspected shoplifters (or absence of detention) with agreement from risk, legal, loss prevention, security, operations and communications departments (In turn, make sure all employees and security personnel are trained in those policies and procedures.)
   • Maintaining training and standards of third-party security guards to help reduce the risk to customers, employees and brand reputation (Also ensure strong indemnification language in favor of your organization.)

Insurance implications

As part of underwriting and pricing general liability, workers compensation and cyber insurance, and in light of increasing retail crime, organizations may be asked

• What are your hiring practices in vetting new hires; do you engage in background checks of employees?
• What is your stance on detaining suspected shoplifters in-store?
• Do you employ or hire third-party security guards?
• What is the training for employees and security guards around detention policies?
• Have you experienced customer or employee injury claims arising from shoplifting incidents in the last three to five years?
• What technology are you employing in deterring retail crime? Does that technology use any biometrics or capture any personal data?

As retail theft continues to increase, retail organizations must ensure that their businesses are protected from losses. Not only are high-end fashion houses being targeted, so are convenience stores, pharmacies, big-box retailers and grocers. This issue is impacting all of retail across North America. In addition to protecting revenue, retailers must also make certain that their employees and customers are at the forefront of decisions made to deter retail crime. Policies on detention should be clear and incorporated into store and security staff training. We are all hopeful that new laws and legislation along with solid policies on theft loss prevention will be an aid to reducing the staggering losses seen in the last few years.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Author

---

Amy Mattle

Retail & Distribution Industry Division Leader

email Email phone +1 312-288-7156

---