The rapid rise of organized retail crime
Organized retail crime (ORC) poses significant challenges for retailers of all types and sizes. ORC refers to a coordinated effort by a network of criminals aimed at stealing merchandise or defrauding retailers through weak or inadequately monitored return policies.
Currently, ORC fraud costs retailers approximately $112 billion each year. According to the Department of Homeland Security, this type of crime also results in nearly $15 billion in lost tax revenue for federal and state governments annually.
In recent years, ORC crime rings have shifted from the dramatic smash-and-grab tactics that gained attention during the COVID-19 pandemic to more subtle and covert operations. These include targeting return and claims processes. It is estimated that 15% of all returns—regardless of ORC involvement—are fraudulent. Organized retail crime organizations are now exploiting literal return policies as well as cultural loopholes, as fraudulent product returns have become increasingly normalized in society.
Why returns and claims are ORC’s new prime target
Organized retail crime is increasingly targeting the retail returns and claims process by using scams that take advantage of the high transaction volume and low-friction return policies that most retailers have implemented.
A recent study reveals that over 50% of consumers have chosen not to shop at specific retailers or ecommerce stores because of restrictive return policies. Organized retail crime rings are well aware that most retailers feel pressured to prioritize customer experience, which makes returns a vulnerable “soft target” for exploitation.
Recently, Appriss Retail and Deloitte discovered that the total value of merchandise returned in the United States reaches $685 billion annually. A significant portion of these returns are attributed to consumer behaviors such as “wardrobing fraud.” This practice occurs when customers purchase items, use them temporarily, and then return them for a full refund. This larger cultural laissez-faire attitude towards returns policy abuse allows ORC fraud rings to infiltrate the retail returns cycle with little detection.
Common ORC tactics in returns fraud
Organized retail crime rings can exploit the returns process in numerous ways, making it crucial for retailers to stay informed and proactive. A few examples of common returns fraud tactics used by ORC groups include:
- No-receipt returns or receipt forgery or alteration – Stolen goods are returned without receipts or with receipts that have been forged.
- Gift card cycling – Also known as “card draining,” it involves criminals stealing gift card information and then using the card once the legitimate purchaser activates it.
- False claims (wrong item, not received) – Claims fraud, particularly false reports of items not received, lead to significant financial losses for retailers.
- Multiple return attempts with slightly altered items – Customers purchase items with the intention of using them, trying on multiple sizes, or temporarily using the item and then returning it for a full refund.
- Return of counterfeit or inferior products – Retail return abusers exploit return policies by replacing genuine products with counterfeit or fake items and returning them for a full refund.
Organized retail crime case study spotlight: footwear laundering fraud
A coordinated ORC fraud network based in the Baltimore–Washington D.C. metro area targeted a major shoe retailer that operates over 500 stores in the United States. This organized retail crime group exploited the retailer’s lenient return policies through a tactic known as tender laundering. In tender laundering, a significant amount of stolen goods are funneled through retailers in a bid to hide their origins and convert them into cash.
The Beltway-based ORC ring was able to take the retailer for $27,000 in losses. The retailer then turned to the multi-layered AI models within Appriss Engage to uncover the elaborate efforts of this ORC fraud syndicate.
Across various stores and states, this group of criminals would return stolen items without a receipt, receiving a gift card in exchange. They would then use this gift card to purchase a brand-new item, which was immediately returned with a proper receipt. The fraudulent return would then refund the amount directly back to an individual’s credit card as a cash refund.
The retailer’s use of AI was instrumental in detecting and dismantling the ORC ring.
- Appriss Engage’s tender laundering AI model, with its ability to detect abnormal circular patterns, was the first to identify the organization’s criminal behavior.
- Network graph modeling then linked multiple individuals exhibiting the same behaviors across stores and states, revealing the full scope of the ORC ring.
To read more case studies and learn how an ORC ring exploited a large retailer’s outdated, one-size-fits-all return policy to generate $31,000 in fraudulent returns, download the complete report, “Return to Sender: How Organized Retail Crime Rings Exploit Returns, Claims, and Loopholes.“
Beyond direct losses: operational & financial fallout
Organized retail crime, particularly ORC fraud, significantly harms a retailer’s brand reputation. It leads to increased operational costs and forces price adjustments, which ultimately affect customers and how they perceive a retailer.
Organized retail crime targeting the return process has led retailers to tighten their return policies, which at times unfairly impact loyal customers. When valid returns are denied, this is referred to as a retailer’s “insult rate,” which measures the percentage of trustworthy customers whose legitimate returns are rejected. The term “insult rate” reflects the negative perception that good customers feel when their returns are treated as fraudulent. A high insult rate suggests that a retailer’s fraud prevention strategies are overly aggressive or improperly calibrated.
Research has found that retailers often alienate their most valuable customers by implementing return policies that treat all shoppers identically, without considering individual shopping and return behaviors. When loyal customers are penalized for making returns without receipts, they significantly reduce their spending.
How AI and data intelligence can help retailers fight back against ORC
Much of today’s ORC fraud is so subtle that it goes undetected. This is where AI plays a crucial role in uncovering hidden patterns and consumer behaviors. AI connects data across various channels to reveal clusters of return policy abuse and how specific returns are actually linked to a larger organized retail crime network, all while ensuring that loyal customers remain safe from scrutiny.
To combat ORC fraud, retailers are now implementing AI-driven return authorization systems, like Appriss Engage, which flag subtle anomalies in real time by analyzing millions of transactions and behavioral indicators. These systems not only stop fraud during the return but continuously learn from each new pattern, denial, or confirmed abuse, creating a living, adaptive fraud strategy that keeps pace with ORC networks.
Beyond return authorization, retailers also need a way to track and investigate incidents tied to organized retail crime. Incident + ORC Intelligence™ streamlines data collection, boosts collaboration, and leverages generative AI to quickly connect related cases. This empowers loss prevention teams to link suspicious activity and build actionable cases against larger ORC networks.
Reclaim the returns process, and your profits
Organized retail crime, such as ORC fraud, has evolved into a sophisticated, billion-dollar operation, with returns becoming one of its most profitable entry points. By taking action now through AI-driven return policies, retailers can embrace the duality of the returns experience by enhancing the overall shopping experience for customers while simultaneously stifling the tactics of ORC gangs.
To learn more about the benefits of creating a battle-tested returns policy that rewards customer loyalty while preventing organized retail crime, read “Return to Sender: How Organized Retail Crime Rings Exploit Returns, Claims, and Loopholes.” Discover how other retailers have utilized AI-enabled data analytics to improve their returns process while effectively combating organized retail crime rings.
