The Fraud Examiner

Retail Schemes Make for Big Business
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By Zach Capers, CFE

January 2015

Now that the holidays are over and presents have been exchanged, vast amounts of clothing, electronic devices and various other retail items are being returned to merchants by purchasers and gift recipients — and criminals. According to the 2014 Return Fraud Survey recently released by the National Retail Federation (NRF), retailers estimate that they will lose $3.8 billion to return fraud during the holiday season, amounting to 35 percent of the nearly $11 billion total losses expected for the year. However, despite return fraud's prevalence during the holidays, it is only one facet of organized retail crime's annual $30 billion impact on retailers.


Organized Retail Crime

While for some the term organized retail crime might evoke little more than an enhanced shoplifting scheme, it is defined by the NRF as "theft/fraudulent activity conducted with the intent to convert illegally obtained merchandise, cargo, cash, or cash equivalent into financial gain, typically through online or offline sales." Organized retail crime rings typically consist of several members, each with specific responsibilities in the execution of sophisticated criminal operations.

Professional shoplifters, known as boosters, work in groups comprised of members with defined roles such as picker, lookout and driver. To more easily access merchandise and overcome security systems, boosters sometimes work in collusion with corrupt store employees. Boosters usually have very specific items in mind when perpetrating their schemes. Heavily targeted items tend to be those that are in high demand and of a high value relative to their size, ease of theft and profitability on the black market.

Commonly stolen items include:

Allergy medication

Teeth whitening strips

Razor blades

Small electronic devices

Baby formula




Energy drinks

Designer clothing


Boosters use numerous methods to inconspicuously remove large amounts of merchandise from store shelves, inventory storage rooms and cargo trucks parked in store loading docks. Tactics often include the use of powerful magnets and other tools needed to remove security tags, or foil-lined bags and clothing intended to shield security tags from anti-theft sensors. A 2013 NRF survey found that 11 percent of all apprehended shoplifters reportedly possessed foil-lined bags.


Ticket Switching

Another challenge faced by merchants is ticket switching, a practice employed by retail thieves to reduce an item's price. Thieves accomplish ticket switching in one of several ways, such as switching the actual price tag of one item for that of a less expensive item, or changing the UPC barcode so that an item rings up for a lower price. While these types of schemes are not new, they have been exacerbated by modern inventory systems and automated checkout kiosks, which reduce the amount of interaction required between employees and customers.

Last month, four Atlanta men were convicted in a ticket switching scam that defrauded The Home Depot out of more than $600,000. For several years, the men switched out UPC codes to purchase items for an artificially low price, only to return the same items for a refund on the full retail price. The credit was issued on refund cards that the men then used to purchase items to be sold at a physical retail stores named "Bargain Wholesale." The men were sentenced to prison time and ordered to pay restitution.


The Impact of eFencing

After thieves have stolen or otherwise fraudulently obtained merchandise, they typically sell the items to a fence for a percentage of its retail value. A fence is someone who wittingly buys stolen merchandise and sells it through a physical location such as a pawnshop or flea market. However, the growth of eFencing through online auction sites has allowed fencing operations to proceed with relative anonymity to a global customer base.


Return Fraud

Some criminal enterprises devise schemes that cut the fence (i.e., middleman) out completely by committing return fraud. As mentioned, return fraud involves the return of a stolen item for a refund or store credit. The illicit credit vouchers, often recognizable by their odd dollar amounts, are then sold online for a discount or used to purchase other easily converted goods.

Another variation of this scam involves purchasing two items — one expensive and one inexpensive — swapping the tags, and returning the inexpensive item for the price of the expensive item. Even more effective is receipt fraud, where the fraudsters create bogus receipts to obtain cash refunds for stolen merchandise. The NRF's 2014 Return Fraud Survey indicated that 25 percent of respondents said they had witnessed counterfeit receipts used in fraudulent return schemes.


Reducing Organized Retail Crime

While thieves are constantly adjusting their methods, retailers can implement many strategies to reduce the threat of organized retail crime, including:


Deploy sensors that recognize the presence of foil-lined booster bags.

Establish an incentive program to reward retail employees for reduced inventory shrinkage.

Be sure that an employee greets or otherwise interacts with customers to ensure that potential thieves feel their presence has been noticed.

Conduct regular observations of inventory, storage rooms and rear entrances to ensure that merchandise is not left unnecessarily vulnerable.

Use radio frequency identification (RFID) tags to track shipments and individual items more effectively than with bar codes.

Train all employees to recognize organized retail crime schemes and effectively report associated behavior.



Organized retail crime doesn’t just affect retailers; it also results in higher prices for consumers, lower compensation for retail employees and a loss of tax revenue for local communities. While 25 states have enacted laws designed to combat organized retail crime, federal legislation, which many believe would be far more effective in stopping these criminal enterprises, has yet to be passed.

Furthermore, the exact impact of organized retail crime is difficult to discern because the Uniform Crime Report does not include it as a classification, unlike crimes such as burglary or auto theft. For now, merchants must remain vigilant and continue to employ the techniques and technology needed to fight these increasingly sophisticated thieves. For more information about organized retail crime, visit the National Retail Federation.


Contact the ACFE
For more information, contact Sarah Hofmann, Public Information Officer, at (512) 478-9000 ext. 324 or