BrainTrust Query: Do the use of high tech criminal methods somehow lessen a retailer's responsibility for trafficking in stolen merchandise?
By Bill Bittner, President, BWH Consulting
A Wall Street Journal article from earlier this week begins by describing William Swanberg, apparently well known on the internet as a very reliable source of deeply discounted Lego sets. It appears that Mr Swanberg has been using fake barcodes to fool the POS Systems at a variety of retailers to stock up on the $100 Lego sets for $19. He would then resell them on a popular toy collectors' web site.
The article goes on to quote a University of Florida study that reveals that retail crime rose to about $37 billion in 2005 from $31 billion in 2003. But what I really found interesting was that the gross margin on stolen goods has doubled or tripled. This is attributed specifically to the expanded retail market provided by the internet. In addition to "fencing" goods, the internet has been a gold mine for selling counterfeit or stolen gift cards. Retailers responding to an NRF survey last year estimated that 70 percent of the gift cards sold over eBay were frauds. Ebay has since introduced stricter policies on gift card sales.
Other scams are discussed in the article and it also talks about employee theft, but the thing that keeps coming back to me is how the internet has made it so much easier and profitable to get rid of the stolen merchandise.
Discussion Questions: Is there something in the nature of internet commerce and other retail technologies that somehow lessens the retailer's obligation to verify legitimate sources of product? How can technology be used to combat the rise in online retail crime?
The article quotes some law enforcement officials as saying that there are sites that take orders for merchandise and then go out and steal it to satisfy the requests. One of the online retailers interviewed said they have no idea where their sellers get their merchandise and can't be expected to know. I think a retailer has an obligation to monitor his suppliers to ensure that merchandise is not likely to be stolen. No established retailer would start a business relationship with someone who pulled up to their warehouse with a trailer of Legos. Even pawn shops, the traditional outlet for questionable merchandise, are required to record the seller and item identity.
Serialization of products with RFID or RSS will go a long way to address this issue by giving each unit a unique identity. By using the "license number" assigned to each unit, retailers will be able to detect duplicate sales or switched tags. In the meantime, cashiers must be trained to detect barcode fraud and online retailers should be required to monitor who is selling on their sites.