Stealing Christmas? The Grinch may have failed, but others are succeeding
What retailers need to know to fight rising fraud and theft
“The Grinch hated Christmas! The whole Christmas season! Now, please don't ask why.
No one quite knows the reason. It could be that his head wasn't screwed on quite right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all may have been that his heart was two sizes too small.”
Dr. Seuss, How the Grinch Stole Christmas
The Grinch learned that stealing Christmas was impossible in the famous Dr. Seuss story. Today, however, stealing during the holiday season is on the rise. Total retail losses are approximately $44.2 billion annually, based on a University of Florida survey.
More than 1.2 million shoplifters and dishonest employees were caught stealing $225 million in 2014, according to the Jack L. Hayes International’s 27th Annual Retail Theft Survey of 25 large retail companies with 23,250 stores and $700 billion in retail sales, This was an increase of 7.1% from 2013. Only 4.3% of the total retail theft losses resulted in a recovery.
Recent retail crime statistics from the UK show similar trends. According to the 2012-2013 Global Retail Theft Barometer, shoplifting, employee and supplier fraud, organized retail criminals and administration errors cost UK retailers and supermarkets 3.4 billion pounds, about 1.2% of sales. The biggest problem globally is shoplifting which accounts for 36% of the losses. Employee fraud isn’t far behind: staff theft accounted for 33% of the 1.1 billion pounds of the overall loss to retailers. And catching employee fraud isn’t easy. On average, it takes 18 months for an employer to catch an employee who is stealing.
Here’s what retailers are fighting:
Dishonest Employees: ‘Sweethearting’ is the most common type of employee theft in retail, according to Greg Bangs, Chief Underwriting Officer of XL Catlin’s Global Crime insurance business. According to Mr. Bangs, “Sweethearting is unauthorized giving-away of merchandise without charge to a ‘sweetheart’ customer, typically a friend, family member or colleague. The retail employee performs a fake scan or cash register ring-up. Employees operating cash registers can create numerous ways to sweetheart including scan avoidance, price overrides, refund fraud, gift card fraud, and void fraud and invoicing scams.
Shoplifting: Shoplifting is not new. In the London of the 1600s, gangs of “lifters” – professional con artists and pick pockets – roamed the streets, “lifting” hundreds of pounds in merchandise from London’s merchants. Notable shoplifters in history include accused murderer Lizzie Borden, French writer and political activist Jean Genet and actress Wynona Ryder who was caught trying to leave Saks Fifth Avenue’s Beverly Hills, California store with more than $5,000 worth of merchandise.
Cargo Thieves: September through December is traditionally the peak season for motor truck cargo shipments. It’s also high season for cargo theft. FreightWatch International says that there were over 245 incidents between September and December 2014. Full truckload thefts constitute 89% of cargo theft in the US, and many heists include driver theft incidents involving either direct theft by the driver, the driver’s voluntary collusion or complicity in the crime, or a deceptive criminal posing as a legitimate carrier resource. “The holiday season is prime time for truck hijackings,” according to XL Catlin’s Senior Vice President and Chief Underwriting Officer of Inland Marine, Anne Marie Elder. “Believe it or not, home and garden products are the most popular to snag during the holidays, according to FreightWatch, followed by food and drink, which are the most popular hijacked items the rest of the year. After all, everyone needs food and thieves can move it quickly.”
Cyber thieves: Cybercrime is estimated to cost the global economy around USD 445 billion a year. Losses are both direct and indirect, with many businesses citing downtime or lost productivity as a costly side-effect of some cybercrimes. “The holidays are prime time for cyber criminals to be out and about trying to steal, not necessarily merchandise, but the personal information of shoppers,” says John Coletti, Chief Underwriting Officer of XL Catlin’s Cyber & Technology insurance business. “Quite a few high profile breaches at major retailers, including those that occurred during the holidays have raised the level of consumer awareness and companies’ information security efforts. But consumers and businesses alike have to remain diligent in protecting personal information – especially during this peak holiday shopping period.”
Why is retail fraud and crime on the rise?
Several reasons. An interesting item in the Hayes International survey stated that over 80,000 of the 1.2 million people caught shoplifting in 2014 were dishonest retail employees. And dishonest employees are not stealing inexpensive items such as pens, pencils and paper clips. The survey found that on a per case average, dishonest employees steal over six times the amount stolen by shoplifters. More disturbing, however, is that the survey says there has been a “general decline in honesty” over the years. This can be seen daily in the news about business, government, celebrities, sports figures and even church leaders being caught up in questionable activities. These events make it easier for borderline employees to steal and rationalize their actions.
Organized retail crime gangs have also become big business. They accounted for over $30 billion in the 2014 losses. These thieves work in teams and tend to steal popular items such as over-the-counter medicines, razors, baby formula, batteries, tools and designer clothing. They are so successful because retailers are under pressure to keep expenses down and that means fewer retail associates are on the sales floors, making it a lot easier for gangs and shoplifters to commit the thefts. Many use “booster-bags” and other similar shoplifting devices to circumvent anti-shoplifting systems. A booster bag is a handmade bag used to shoplift whose inside is lined with a special material, typically multiple layers of aluminum foil to foil anti-theft technology.
Selling the stolen merchandise is also much easier today. Thieves can sell their stolen items through on-line auction sites such as eBay, which result in quicker sales and much higher prices than the traditional selling of items on the street or at a local flea market. In 2012, the US Federal Bureau of Investigation (FBI) reported on the sentencing of a man in Oregon. He was sentenced for shoplifting from Portland-area retail stores. He sold the stolen merchandise over eBay. During a seven-month period, he earned $43,200 which represented more than $73,000 in retail losses.
Many shoplifters do not fear prosecution. Shoplifting in the US is viewed as a “low risk/non-offensive” crime. Often, when someone is caught shoplifting, he or she is cited with a fine and released. Prosecution of non-violent crimes such as shoplifting is generally not a priority focus for law enforcement and seldom results in jail time, unlike the above mentioned case which resulted in a one year prison sentence, three years of supervised release after his prison sentence, and restitution of nearly $21,000.
Education is a big part of preventing any crime, including cargo theft."
How are retailers fighting it?
According to XL Catlin’s Bangs, many retailers say employee theft is a bigger threat to their bottom line than shoplifting. “But either way, combatting retail crime requires a watchful eye,” says Mr. Bangs. He suggests:
Pay regular visits. Retail managers need to be seen. Paying unexpected visits frequently helps minimize opportunities for employees to behave badly.
- Letting it be known. Retailers need to let employees – and potential shoplifters -- know that they take crime seriously – serious enough to prosecute. Signage in stores helps warn people with sticky fingers that they may be under surveillance and if caught, offenders will be prosecuted.
- Establish an inventory-tracking system. Robust inventory tracking, and employees' knowledge of the tracking, can be a solid deterrent. In the event that this doesn’t stop an employee’s propensity to steal, it can help spot discrepancies and minimize crime losses.
- Train employees on theft-prevention, both shoplifting and employee theft. Discuss the ways the company is prepared to detect either.
- Encourage anonymous tips by establishing a hotline to report wrong doing. “While dishonest employees can be the biggest source of losses,” explains Mr. Bangs. “Honest employees can be the best line of defense in preventing and minimizing losses by reporting suspicious activity.”
“Education is a big part of preventing any crime, including cargo theft,” says Ms. Elder of XL Catlin’s Inland Marine insurance business. “As an insurer, we see what is happening out there through our clients’ claims activity – scenarios like thieves posing as legitimate transportation companies, complete with fake invoices, who drive off with a truckload of stolen goods. It’s important to share this information with our clients to make sure they are aware of schemes that could lead to theft.”
Awareness is key in preventing cyber criminals too, says Mr. Coletti, “Given the high profile breaches that we’ve seen, retailers have stepped up their security management, and if shoppers are using credit cards for the holidays, it’s always good practice to keep a careful watch on activity by checking your bank or credit card statement regularly. Criminals are continuously finding new ways to deceive. Consumers and businesses alike have to remain diligent.”
About the Author
Maryanne Sherman is President of Sherman Think Tank, a marketing communications consulting firm specializing in writing about re/insurers.