Houston had a problem. For that matter, so did the rest of Texas and neighboring states. Boosters were hitting retailers hard, “waltzing in…and brazenly walking out with stolen products of all kinds, from medicine and baby formula to health and beauty supplies,” according to the FBI. The ring of thieves shipped stolen merchandise (using phony accounts) to a shell company’s warehouse in Houston. The goods were then stripped of stickers and anti-theft tags, shipped to wholesalers, and put back in circulation. Every year from 2008 to 2012, this one shoplifting operation swiped an estimated $10 million worth of products.
But in March 2012 the jig was up. Ringleader Sameh Khaled Danhach was placed under arrest. Executing a warrant on the Houston warehouse turned up more than $300,000 worth of merchandise, as well as a ledger revealing that in just over one year Danhach paid $1.8 million for stolen merchandise that he turned around and sold for $2.8 million. In 2014, it took a federal jury in Houston just one hour to find Danhach guilty, and he was sentenced to serve 12-plus years in prison. Danhach appealed, filing a motion to suppress the evidence found in the warehouse search, but a few months ago, on March 9, the Fifth Circuit US Court of Appeals affirmed the conviction.The case is exactly the kind of crackdown on organized retail crime (ORC) that gives retailers hope and that law enforcement loves to tout. Indeed, the Danhach case was featured in the agency’s 2013 edition of The FBI Story, an annual compilation of successful major investigations and operations. “It all came to an end thanks to a multi-agency investigation by the FBI, the Houston Police Department, and the Harris County Sheriff’s Office, with the help of victim merchants,” the report trumpeted (“Organized Retail Theft—Major Middle Eastern Crime Ring Dismantled”).
But what, exactly, is the “end” of cases like these? They certainly have a feel-good conclusion—everyone enjoys seeing bad guys put behind bars—but Stuart Levine, president and CEO of The Zellman Group, questions whether retailers truly receive justice (or even adequate pay back) for their cooperation. “The retailer isn’t represented,” says Levine. “They just see that they never get their money back.”
Levine believes retailers need to be mindful of the unique interest that law enforcement has in such cases—to build as big a case as possible—which does not usually well serve individual retail victims of ORC. Additionally, the law typically allows for local and state law enforcement to liquidate assets from the crime rings they bust, which they are keen to do, so restitution for retailer victims is not (to put it nicely) high on their agenda. Finally, unless courts are pushed on the issue of restitution for retailers from the outset, they, too, typically neglect it.
Providing retailers an opportunity for their interests to be represented in ORC cases is exactly what The Zellman Group is after with its new ORC recovery program. Through the program, the first of its kind in the industry, retailers get help building strong cases and navigating the complex judicial environment to finally start getting back what they’re owed.
The need for a strategy to recoup losses from ORC is made clear by the latest industry data from the 2015 Organized Retail Crime Survey from the National Retail Federation. Nearly all retailers surveyed—a whopping 97 percent—reported being victims of ORC activity in the previous 12 months. More than 4 out of 5 retailers said ORC activity had increased in the previous year, with 48.5 percent reporting a “significant increase” in ORC activity. It’s a $30 billion-dollar problem annually, according to the data, and the attitude toward risk among the criminal element hasn’t significantly changed. “It’s still seen as an easy crime and that it’s treated lightly,” said William Ramos, director of The Zellman Group’s ORC recovery program. “A professional shoplifter may have 30 arrests before they see 6 months in jail.”
To be sure, progress has been made in the fight against ORC. Some 30 states now have ORC legislation on their books, up from 25 from a year ago. Surveys also indicate a greater awareness and understanding of ORC among law enforcement. But these developments only help retailers indirectly in their fight against ORC, according to Lauren Bridgeo, vice president of operations at The Zellman Group. ORC laws aim to hold professional shoplifters more accountable, they aren’t focused on making retailers whole again. And awareness among law enforcement—although it has made them a more valuable source of support for loss prevention departments—has chiefly resulted in police becoming savvy enough to seize assets for themselves. “The changes in laws are helpful for prosecutions but when it comes to recovering retailers’ losses they haven’t made much of a difference,” said Bridgeo. “To this point, it’s law enforcement that has reaped the benefit of proceeds from successful ORC cases.”
Given that the deck is stacked against retailers to recover money from ORC cases—and because the problem of ORC isn’t going away—it’s important for retailers to proactively define a strategy for managing it. To that end, retailers need to objectively assess whether they have the expertise, connections, bandwidth, and desire to manage cases—or whether partnering with professionals whose primary business is asset recovery is a better option for complex and time-consuming ORC cases. In Part II of our report, we’ll examine exactly what this alternative approach to ORC management looks like.