The Rise of Organized Retail Crime at Big Box Stores

The scope of modern retail theft

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1:38Hello, OddLods listeners. I'm Joe Weisenthal. And I'm Tracy Alloway. We're the hosts of the OddLods podcast, and we've got something exciting for you. That's right. So one of the best parts of hosting our podcast is we get to actually meet and interact with our listeners. And we know we have some listeners over in Los Angeles. That's right. So if you're in L.A., we're going to be recording a live show, some live recordings at the Vermont Theater in Hollywood on September 17th.

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2:46Hello and welcome to another episode of the OddLots podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, we did an episode recently with Reid Lustelo, the chief marketing officer over at the Truck Parking Club. Yeah. And that was a great episode about the— Super fun. The rebound in trucking. But he mentioned one thing, and he did it in a sort of offhand way, and it really piqued my interest. He basically said that cargo theft had become this huge deal. And it wasn't just, you know, some guys stealing boxes off the back of trucks, which is kind of what I have in my head.

3:19Same. It was people spoofing actual carriers or pretending to be a carrier and then picking up entire cargo loads of inventory and presumably reselling it. No, that totally blew my mind. I mean, it makes sense, right? Like, okay, if we're talking in the U.S., there's tens of thousands of trucking companies. And so the degree to which any shipper could really know, any carrier is probably kind of loose, et cetera. It's like, yeah, why not just sort of like spring up one day and, you know, get some shipments and then take them on your own way.

3:50It makes a lot of sense, but definitely not what I would have had in mind, as you said, about what a cargo theft meant up until that point. Well, since then, I keep seeing these headlines popping up. There was a great Bloomberg story the other day actually called The Great Modern Train Robbery Thieves Steal $200 Million a Year Off of Railway Cars. And so you can see, like, this seems to be a big deal. Yeah. We know living in New York that it feels like shoplifting has become a bigger deal in recent years after the pandemic.

4:21And we can debate whether or not the statistics bear that out. But certainly if you walk down the street and you go into our local Duane Reade, everything's locked up, right? Right. That's the sort of core thing is like, I don't, you know, there's probably various ways to massage statistics and all kinds of stuff. But whatever, it's not good. I see them locking the stuff up. They're locking it up. They must know that customers, by and large, hate it, right? They must know that it decreases labor productivity, having to have staffers in the store.

4:52You have to ring the bell and wait. Yeah, get a deodorant. Like, they can't think that that's a great operation. So if they're doing it, I presume there are some real issues there. Well, we're going to get into all of it today. We'll do the sort of low-level locking stuff up on shelves all the way to the high-level pretending to be an entire trucking company and stealing someone's inventory that way. And I'm glad to say we have the perfect guest to try to understand all of this.

Meet Scott Glenn from Home Depot

5:15We're going to be speaking with Scott Glenn. He is the vice president of asset protection over at the Home Depot and an organized retail crime expert. So truly the perfect person to speak to. Scott, thank you so much for coming on Odd Lots. Yeah, thanks, guys. Thanks for having me. I appreciate the, you know, the expert designation. I'm not so sure I can live up to that, but I'll do my best. I love that you're wearing the Home Depot apron as well. Yeah, look, it's part of our culture. It's part of what we are. You can see our values over our heart is an intentional thing.

5:47Today's earnings day for Home Depot. And so we're all supporting the cause. All right. First question, and then we can get into maybe more serious topics. But what's the most stolen item from Home Depot? Volume or dollars? Well, let's do both. Let's do both. So I would say volume, it's typically something like a power drill. You see a lot of that. And then when you start to get into dollars, believe it or not, copper and wire have a lot of the commodity value out there.

6:18And so we see people come in, they'll take a lot of that stuff out of the building and try to resell it or use it on jobs, things like that. But yeah, so certainly those are those are certainly two of the bigger ones. Joe, someone broke into there's a museum close to where I am in Connecticut. They call it the Nathan Hale Museum, an old colonial homestead. Someone broke into it recently and stole a bunch of copper pipes. Are you serious? Like they were like old pipes that were. Apparently it was in the house next to it, but it was still pretty upsetting for everyone. You know, a historic home for copper.

6:50It happens everywhere. When I joined Home Depot eight years ago and I moved into my house between the time I closed on my house and the time that I moved into the house, they took all the copper out of the HVAC units and all the pieces of it. So it's just it is definitely a commodity that fluctuates in price. And when the price goes up, it becomes really valuable to the bad guys. Well, that's actually a great thing. So you mentioned you've been at the Home Depot for eight years. But why don't you give us a quick like sort of overview of your career, what your role

7:21is, why we're talking to you, like what's what's been the main thing that have landed you in this chair? Yeah. So I would tell you a surprise that I'm in this chair. I went to school to be an architect when I was when I was going into college and realized that I wasn't very good at math. So I decided to maybe go work for the FBI and I got into the criminal justice side of the business. I was always fascinated by the law. I ended up going to law school after college and and did that route. But what started working with the Treasury Department right out of law school and worked

7:51for the Bureau of Alcohol, Tobacco and Firearms, realized that I did not like government service. It just wasn't my gig. It wasn't what I wanted to do forever. And so I had during summers during school, I had worked at Target and caught shoplifters. So just kind of a side, you know, make some money gig. And luckily, I was able to get back my foot in the door with Target after I left the government and worked for them and just worked my way up through the ranks. So I've been here, been at Kohl's Department Stores for 10 years. I was at Sears for 10 years as a CSO.

8:21And then I came back here to Home Depot eight years ago. So before we go any further, why don't we define our terms?

Defining theft terms and metrics

8:28When we talk about retail theft, I imagine this covers a range of activities from, you know, someone innocently, perhaps forgetting to scan their deodorant at self-checkout to really organized, seemingly very ambitious heist. What are we talking about exactly here? How do you kind of categorize retail theft in your head? Yeah, it's a spectrum. To your point, there's definitely low level opportunistic, I'll even call it the need shoplifters that are out there.

8:58They just can't afford things. And we know that happens. And that's not what I would say acceptable to us, but it's also not our focus. It's not the place where we spend a lot of our energy and our tactics up to the most sophisticated criminal organizations that are out there. And I mean, sophisticated cartel related transnational gang related international organizations whose sole existence is to monetize theft to do other bad things, whether that's money laundering, drug trafficking, human trafficking.

9:28And these are absolutely known things that are happening out there. So it's a there's a lot of space in between that and it runs the gamut. But we tend to focus our time and our energy and our resources on the higher end. While we're in the business of defining terms here, I think this is helpful. A word like shrinkage is one that comes up. Would shrinkage only apply to, OK, the person who walks into a store and manages to walk out with a power drill or something like that. Or is it counted in shrinkage statistics if it's like a very complex heist of an entire

10:02truck that never makes it to the destination? When we talk about shrink in retail, we're talking about at the end of the day, I have inventory on my books. And when I physically go to count that inventory, it's not there. There's a lot of different ways that could happen. That is not just the bad guys coming in and stealing stuff. But so when we talk about things within our world here, when I talk with our leadership and I talk to our board, we break it out into what we call operational or controllable administrative types of shrink and then what we call the malicious.

10:32And another way to look at that is might be like things we do to ourself versus things people do to us. And that's the way we tend to categorize that ratio. And for us, I'm not gonna say this is for everybody at retail, but for us, we're pretty good at controlling the operational side of the business. So about 30% of our shrink is falls into that operational administrative things we do to ourself type of category. And then the balance of it falls into more of the malicious side or things that people do to us. That's very helpful. And then one more question on this in the broader category of retail theft, do you have

11:07a split on how much happens in store versus somewhere else, whether it's one of the distribution center, warehouse, et cetera, versus somewhere else on the supply chain? Yeah. So we actually break out our shrink in the supply chain separately. Then we break out our shrink in the retail environments versus the way we break out our shrink in our online environment. So we actually have three different buckets of where the shrink can happen that roll up to our larger. Now, in the supply chain, you can have operational, financial, and malicious shrink. In the stores, you can have operational, financial, and malicious shrink.

11:38And online, you can have operational, financial, and malicious shrink. So that all rolls up to the big number. But the biggest chunk of it, to your point, does exist in the 2,400 stores, retail stores that we have out there. Got it. So give us a sense of the overall shrink problem versus how much of it is malicious, how much of it is operational across the industry. And is it true that retail theft has become more of an issue? Because again, you see these statistics. You see the headlines, Target closing two stores because of rising crime, or you see a company

12:11come out and say, oh, our shrink has gone up this year. But to your point, it could be because maybe they're just worse at keeping track of their inventory than they were the year before. So give us some context around how big a problem this is and whether or not it's been getting worse. You're getting to probably the most debated question in retail asset protection, loss prevention, which is, and I wish I could give you a clean answer on that. I can't. I can tell you, maybe I'll start at the top and say, how big is it?

12:43It's in the billions. It's in the tens of billions. The shrink problem. There's a lot of different estimates out there. Our cohorts, my peers, my friends and peer retailers, we all talk about this. We work with Relo, we work with NRF, we work with all to try to get the best estimates on what this number is, but how people categorize shrink, what somebody calls operational shrink versus administrative versus malicious can vary by retailers. And so you've got the retail component of, we are a retail accounting operation.

13:14There are companies that are on cost accounting. And so making that transition between the dollars and how do you include markup and to get to a number, very, very complicated number. What I can tell you is, is that there's these numbers that have been around as long as I've been doing this in retail, which is like 40% of shrink on the malicious side is done by associates working for the company. They cause 40% of your loss. 35% are people walking into your store and causing it in 20, 25, whatever the balance is,

13:45is that self-inflicted operational administrative types of shrink. And so those numbers, add flow, they go every year. There's surveys that are done. They might go up a couple of percentages. They might go down a couple of percentages. What I can speak to is when I got here at Home Depot in 2018, I wasn't even really a big believer in what you would call the organized retail crime problem. Also pre-COVID, also before Omni really took off and has blown up to what it is here, places

14:15where you can resell very impersonally. Wait, what's Omni? Online. Online sales. Sorry. Omni channel. Sorry. But when you think about the kinetics of all that and how that's changed over time, and I would tell you that I have become a believer in one, organized retail crime exists. It's become more lucrative. It's become more pervasive. And it's become more dangerous when it comes to how it impacts the customers and the associates in the stores. So while those numbers have generally estimated, stayed in the kind of same buckets, I believe

14:47they're starting to drift up. And I also believe since COVID, they've been underreported. And so I think that there's a big piece of that, that it's just not necessarily reflecting in all the numbers that you see showing up in police reporting, FBI uniform crime reports, things of that nature.

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Identifying organized retail crime

17:51But you said earlier in the episode that you're more interested in the sort of more sophisticated, organized drivers of shrink than perhaps a random person who maybe they can't afford an item, et cetera. Can you talk to us about in a given theft, et cetera, someone goes into a store and they walk out or they take something that they didn't pay for. What are the fingerprints that look like, OK, this we have reason to believe was part of something sophisticated and organized versus this is like, yeah, we don't support that.

18:27But it's one random person and it's not going to be the main thing we prioritize. Yeah. You guys asked some great questions to get right into the into the details of how how some of this this becomes difficult. So in an individual instance, it's almost impossible. You know, if you talk to somebody, if the you know, we have people in our stores, their whole job is to stop theft. That's what they do, that they detain people, they prosecute, they they work with the law enforcement and they and they deal with that. And then we have groups of people here in Atlanta whose job is to handle the more sophisticated components of this piece of it.

18:57But it all starts locally. It all starts in the stores. And so some of that is, hey, I see somebody steal that drill and you sit down and have a conversation with that person before they end up going to jail. And they were really using it to work on a project on their deck on their house. Whereas you might have that conversation with them and say, yeah, I was asked to come and steal this and I was going to go take it to another place and I was going to get money for that or I was going to get drugs for that or I was going to get something and I was going to get given a list to go to another store and go get something else. And so we cultivate that intelligence.

19:29We cultivate those resources and report that back to our folks here who are organized retail crime experts and do this for a living, most of whom are former federal law enforcement agents or law enforcement agents at state and local agencies. And their job is to figure out which is the wheat and which is the chaff and what are the things that are the most important thing for us to go. So we have video analytics. We have other technologies that we work on to kind of say, OK, now I know this person. I know this car. I know this vehicle. I've seen them in store A. Now I've seen them in store B. We've got a report from that building that says, you know, Johnny with driver's license

20:021, 2, 3, 4, 5, 6 has been in now four stores apprehended for theft because they're going to get apprehended. They might be put in jail and they'll be out the next day. You know, they're going to make bail or there's going to be no cash bail or whatever the case may be. And they're just going to go back to doing what they're doing. And so that's how we try to like stitch these cases together and understand which ones are the ones that are more valuable to pull on versus the ones that are like, this is really a one time occurrence and this is not something that we need to spend a lot of resources on. To what degree do you actually work with the police? Because when you talk about, well, we observe these people going to different stores and

20:36we try to see if we can identify patterns and stitch the sort of ring together. That sounds like something the police should be doing. Sometimes it's hard enough to get the police to show up. And I'm not blaming in this case. I mean, we know that police departments are under-resourced, stretched very thin. When you talk about retail theft versus, you know, robbery versus carjacking versus murder and the escalation hierarchy, where are they going to spend their time, right? So they're not going to always be able to have the capability to come to our store and deal

21:07with this. So I would tell you our, I'll call it our internal behind the scenes as we, our job is to do the work for them. Our job is to hand them a case file that is 80% complete that says, I've given you everything that I can possibly do for you to then walk into a judge, get a search warrant, get an arrest warrant, do everything that I can't do. And they're going to respect that. They're going to say, if I don't have to do all the hard work, I don't have to do all the behind the scenes labor. And all I've got to do is walk in front of a judge and say, this is a great case. And we believe, we believe everything that's here and put their hand up and swear on the,

21:39on the, on the Bible, then they're going to take those cases much more regularly than somebody that's kind of saying, Hey, you just go figure it out for me. Just one more question on this. Is it true that some retailers will not stop shoplifting until they observe the shoplifter getting to a certain threshold of goods stolen? Because then they can go for like an actual meaningful charge. You know, I would be hard pressed to speak to that for what the policies of some of my, my compatriots are there.

22:10But what I would say is, is we don't do that. When people say that, I feel like they're, they're kind of looking at things in a very narrow scope. And going back to our point earlier, this may be something where we're already working on this person. We know they've been in 50 stores over the last 30 days stealing from us. And if they walk out the door, it may be because we're going to go watch them go to where the fence is or where they're going to resell the product or where they're storing the product. That might be part of an operation versus a, Hey, we're letting you go get to a threshold.

22:41And that's really what, you know, at least from our end, we're not trying to like build up big charges on people. We're trying to say, I want to get the complete picture of what's happening because when I wrap this up, I want it to be completely wrapped up. Intuitively, it seems like it would probably be pretty hard to prevent someone from like stealing a washer, like the little disc or something like that, you know, like put it in your jeans pockets or whatever. It seems like technology should make it very hard intuitively to steal a power drill, because

23:11I imagine you could put tags on it that would set off alarms, that you could have video surveillance that could simply set off something. If a person was in one aisle trigger, I have to imagine it's not that hard to train a model to identify someone, take it off the shelf, and then that person makes a route out the store without ever having gone to the register. This seems solvable by technology alone. Why isn't it? What is it makes such that A, it must still happen all the time, or B, it only gets stopped

23:46if a person at the end happens to notice it? I love your thought process. That is a really expensive thought process. And you think about a Home Depot store, 140,000 square feet of a working warehouse to put the cameras that I would need to do that. And by the way, there are places where we do that. There are places, you know, in some aisles we're able to do that, but we have a lot of valuable stuff in our stores, in different parts of the store. At the front end, we have AI, you know, base cameras. We have a lot of different, I would say, video analytics that are continuing to evolve and

24:19we're really leaning into, but it is expensive and it's a lot of processing power. It's a lot of hardware that you have to put into your stores. We have some advantages with our scale and our size to be able to do some of that. Not everybody does. And certainly not everybody has, you know, sometimes it's a little bit of a trade-off, like how much are you willing to take and shrink versus how much you would have to invest in hardware, capital expense, operating expenses to be able to put it to zero. I mean, the number we aspire to is zero. The number we'll get to is somewhere north of that. But just like, what about tags and stuff that are, I mean, there are clothing items in many

24:53stores that have tags that will set off an alarm. Why at a level of a power drill, is that an insufficient technology to get the number to zero? It's not, it's not insufficient. We've played around in the bricking of product space. When you think about, you know, the margins in some of these places, does it make sense to do it, to go have to redefine your entire production line for a Milwaukee drill in order to insert a capability, a Bluetooth chip of some sort?

25:24We've tried that. It's very, very hard to scale up. And again, you still have to put hardware in your stores to be able to detect those tags, that that's the piece that typically is very expensive. Again, none of this is impossible. It's just like, there's always trade-offs and you're working towards that. But it's going to take some time. I mean, to be honest with you, RFID has a lot of promise in terms of tracking, not just the theft side of product, but like, where is this product in the store? Has it been sold? What's the replenishment look like? How do you get your own hands corrected? There's a ton of business opportunities on those pieces.

25:57But I think that RFID hardware costs have always been so expensive, it's almost impossible to put it in a store, at a Home Depot store. We have eight separate entrances in and out of our building. How much of this is a liability issue in the sense that, okay, I can tag an item and I can hear an alarm ring if someone is going out with it without paying, but there's still an issue over whether or not you want your employees, even your security guards, going after people who might actually fight back and be dangerous. And I'm sure we've all seen, you especially, Scott, the videos of some guy who just fills a

26:32massive shopping cart and walks out of the store with the security staff looking on. It's the bigger issue than the financial, right? Like at the end of the day, there's a certain level of, we understand there's going to be some shrink in our stores. There's a certain cost of doing business. When you open up to the public, you're going to have some of this type of pieces of it. But this is the problem specifically with the organized retail crime folks, the professional criminals, a lot of times they're using homeless folks, addicted folks, people that are maybe

27:03on the, you know, down and down low, and they are monetizing them to go in and do this. And their only thought process is, I'm leaving with this product because I need to get my money. I need to get my whatever. And they will do violent things. And they have done violent things. And not only, you know, has it happened in retail, it's happened specifically to us. And we've actually had people injured, we've had people killed in our stores in these types of incidents where that is just, we're not going to allow that. So our security folks, our asset protection people in stores, they're trained.

27:37They're trained not only on how to do what they do, but also how to deescalate, how to observe and pull away from those situations when they start there. But we also have 400,000 store associates who are very passionate. They don't like to see stuff stolen. And we train them very clearly on like, you don't get involved with these things. You back away. And we do give them the same, you know, a slightly different, but still deescalation type training, because that's the problem. I'll trade the shrink for the safety of the people every day of the week. And my leadership team and our board would back us on those decisions all day long.

28:11We're never, ever going to put people in jeopardy. Our associates and our customers are the number one priority. I've been hearing, we've been hearing about RFID tags for 25 years now. I would have assumed that the price of this hardware would have come down dramatically such that you slap a little tag on and if it like, you know, it's not very easy to remove. And then by the time you go through some gate or entrance, it sets off an alarm. Can you talk about why in 2026 that technology is still actually expensive and hard to scale?

28:44No, no, I can't. I don't understand it. It's your lips to God's ears, right? Like it's one of those things where I'm with you. And I will say a Home Depot environment, a little different. We are a hardware store with basically a Faraday cage of steel throughout our stores. We do, a passive RFID does not work in our stores. You have to go to an active pinging RFID technology. We've tested it. We know it can work. But again, it's all about typically those. But can you just explain that it does not work in your stores?

29:18Actually, I don't know anything about this. Can you clarify that? It's difficult. The signals are blocked by the steel. That's typically the way it works in our stores. For a passive technology like that, there is an active version of RFID that's out there. But again, it's typically, and it's not like they're not coming down. I mean, tag costs are nil at this point. That's not really the issue. It is truly the hardware capabilities to be able to put it everywhere you want, to be able to read the way you want it to. It's still a very expensive technology to this point.

29:48Three years from now, who knows? So why don't we talk about what happens after the goods get out of the retail environment?

Fencing operations and online marketplaces

29:57And maybe we should talk about the distribution environment at some point, too. But what is fencing? Yeah. Not the sport. So again, I kind of mentioned what we call the boosters, and we're specifically now talking about organized retail crime. Boosters are the people that do the stealing. Typically, they are recruited. They are given a list. They are given money. They are given, in many cases, drugs or the promise of drugs to when they come back with the product, which is kind of the hook to make sure that they don't just walk away with the product and their money.

30:27And these folks are the ones that go out and they take the risk. They pull the product out of the stores and they do it, like I said, they can be very aggressive. They could be very violent in many cases. And all they're thinking about is, how do I get out of this building and go to where I'm supposed to go? And they take it to what we call the fence. The fence is kind of the consolidator of the product. So this could be somebody's house in their garage. This could be a warehouse facility. This could be a flea market. This could be you name it. I'll get back to it. There's another interesting twist on this piece of it that I'll get back to what the

31:00boosters are doing and fences are doing here. But then these fences are the folks that actually clean the product and then offer the product for resale. So when I say clean it, to your point, some of these have electronic tags on them. They might have identifying, this is a product that's sold at Home Depot. This is a product that's sold at Target. This is a product that's sold at CVS. Stickers, identifying price tags, things like that. They want to clean all that product. And then they'll offer it for sale somewhere. More and more since late teens, early 20s, that's online.

31:31And in the past, I would say it was some of the bigger online folks, the Amazons of the world, the Ebays of the world, the bigger places. Since the Informed Consumers Act was passed in 2023, I believe is when it came effective. We've seen less of that on the bigger places. And now it's moved to more of the peer-to-peer markets. So the Craigslist, the Facebook marketplaces of the world. So that's where a lot of that product is then offered for sale. And so that's the fencing operation. And then the money is then kicked up to wherever, or at least a portion of it, just like your traditional organized retail crime or organized crime.

32:03It's kicked up to some bosses that are managing this whole operation from the top. And whether that's five guys that are sitting in an apartment or a house that just decided that they want to be organized retail criminals, certainly fits the definition of all those types of things, and they're using the money to furnish a lifestyle, or a cartel or a Chinese transnational gang or a South American whatever, that could be any of those people that are the ones that are sitting at that top level, supervising the fences, making sure that the product's getting

32:35moved and making sure that the money's coming in. So I've heard, you know, there have been stories about Facebook Marketplace and frustration that Facebook hasn't done more. I'm not sure what the status of that. You know, if you see for sale on Facebook Marketplace, like a 10-pack of unopened Hanes t-shirts or something like that, there might be legitimate reason to think that this was stolen. It could also be a legitimate sale. Someone bought t-shirts and they never wore them like it's plausible. What is the optimal role for an owner of a peer-to-peer platform to play?

33:12And then what do you perceive right now as the gap between what would be a sort of like optimal role for them and contribution to fighting this versus what they're doing right now? The short answer is it's very expensive to patrol your platform, to know your seller, to make sure that you really understand that they're a legitimate business and that they're a legitimate reseller. In form, the federal bill that was passed earlier required the traditional marketplaces to actually do that, take that step and make sure that they did, just like I have to know

33:45who my suppliers are here at Home Depot, they had to know who their suppliers are at the Amazons and the Ebays of the world. There was a loophole in that bill that did not cover the peer-to-peer resellers. Can't explain why it happened. Just it happened. And so that loophole has continued to exist for it. And they're not going to put the governance in to do it unless they're forced to, just like the bigger boxes didn't have to before in form. And so we spend a lot of time governing those marketplaces. So we have technologies that are looking at that and say, if Home Depot sells this combination

34:20drill kit for $499, how in the heck is, you know, Tommy1234 selling it for $200 and at volume, you know, how can he sell new in-box product at a price lower than my cost? And so we will look for that type of stuff. And that's where a lot of our investigations also will start. We'll actually start on the marketplace and work backwards to the person coming into the store, going back to kind of our earlier discussion. But it's whack-a-mole to a certain degree, right? I mean, we are really, we're really patrolling millions and millions of sellers that are out

34:50there. So we build criterias, we build models that kind of look and say, boy, this person sells a lot of drills. This person sells a lot of drills new in-box. This person sells a lot of drills new in-box under our cost for the product. So that's kind of the way we tend to do that. But it's a, it's an uphill climb. It's a, it's a big battle.

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37:07growth. And Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem. Diverse communities that attract top talent and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. This might be a very niche question, but do you observe any interesting trends when it

37:39comes to the prices that fences are actually choosing for these items? Because they could, I mean, if you have something new in a box, you could maybe try to charge almost full price for a power drill or something. Or you see them with like massive discounts as well, and they're leaving money on the table. I wouldn't tell you that I've done a lot of research into like what the specifics are. What the general consensus is, the more technology-laden the product is, the more it sells closer to retail. That plus gift cards.

38:10Gift cards tend to sell very close to retail. So we see a lot of our products selling in the 70% to 80% of retail range. Whereas in some cases, you'd think about the deodorants and the T-shirts and the Tylenol and some of that tends to be in the 30 to 40 cents per of retail market. So there's some broad strokes on that, but honestly, I don't spend a ton of time doing that. Just it tends to be like if it's internet connected, it sells very, very close to retail. If it's technology-driven, it's got some resale capability to it.

38:41Efficient markets, finding the right price of anything on any platform. So you talk about this loophole in the law that allowed the peer-to-peer sellers. What would be that additional step? Okay, if they were to close this loophole, what would they then be required to do? And are you either surprised or disappointed given, I mean, a company like Meta is gigantic. Are you either, would you have been surprised or a little disappointed that they would not feel the impulse to do this voluntarily without being required by law?

39:13They'll tell you that they do a lot of policing of their site. And I'm not arguing that they don't have, I know they have departments that do that. We work with them. I mean, so they're not completely willfully blind. They're not completely out there just saying, no, it doesn't happen on our site. We think they could do more. And again, it comes back to if they had information, if they had policing in place that said, how in the world does this guy undercut Home Depot or Target on pricing? That should be a flag for them to say, I'm going to pull you off the site.

39:44I'm going to suspend you from the site versus us having to come to them and say, this guy is undercutting us on pricing. He's selling at volume. He's selling at scale. We've bought the product for it. We know what store it came from. We know that this guy's involved in crime. Now you go pull them off the site. And so your answer is both disappointed and surprised. Like that they, do I think they could be doing more? For sure, do I think that I should be the one that has to come? It seems a little backwards to me that I should have to come and tell them that they've got somebody selling stolen product on their site versus them knowing who their suppliers are,

40:17knowing that tax records exist and that there's, you know, filings that are out there that they should be held accountable to the same way the Amazons and the Ebays of the world are.

Balancing lockups and customer experience

40:26Can you talk a little bit more about the balance between trying to shrink the shrink in various ways and customer experience? Because again, we've all experienced the frustration of going into a, usually it's a drugstore of some kind and hitting the plastic wall and having to press the button and wait for someone to come. And then you're standing there for 10 minutes and then they don't have the right key. And sorry, this happened to me recently. No, keep going on. So seriously, they don't have the right key.

40:56I get a few of those emails every week from our, from our leadership. So I got to, but stores, some stores have clearly made the decision that it's worth it to them economically to do this. We have, it is not an easy conversation with your merchants. It's not an easy conversation with your operators. It's a very arduous data driven discussion. And so I can think back when I got here in 2018, middle of 2018, and we were on a trajectory of shrink that was not good. It was going way the wrong way at that point.

41:29And we started to have some of these conversations and, but, but I'm a data guy and I'm a, I'm a test and learn guy. I'm, I, I like to, you know, have my facts. And so we did some testing. We did this. We did a lot of looking into what products we were losing very, very specifically under the microscope. We found that, you know, one particular combination of kit that we were selling for $799, we would buy it 4.2 times for every time we sell it. Wow. Now go have that conversation with your finance folks and they go, that's a gross margin mix.

42:00We don't like that's a, that's a real business opportunity. If you can get me to break even, if you can get me to slightly positive on that, you know, from a gross margin perspective, then they go, okay, there's a little bit of a trade-off, but it's also, we're in a unique business. We're in a, we're in a business that 50 ish percent of our revenue comes from pros and contractors. If they leave a job site because their drill broke and they go to the store because it said we had one and we don't, that's a problem too. And so, you know, as we kind of walk through and we work through this, we got to a very curated

42:33list of products where we said, we're going to probably have to do something. And if we do it, we can do it the right way and try to minimize the friction. And, you know, we use QR codes on all of our lockups that summon somebody through our phone that they come and it takes on average about 90 seconds for that lockup to be unlocked by person. I want to be in a place where customers can self-service. If they scan the QR code and I know that they're a pro that's in our loyalty program, why can't I give them access to that? So we're working through the friction. That's always going to be an opportunity for us.

43:05And we're trying to minimize it to the best we can, but it's not perfect. And it's, it's definitely a little bit of a balancing act that you walk on some of those particular products. You can't do everything like that's just, just buy online. Like if that exists, that's Amazon. If you don't want to go into a store and you don't want to be held up and you can wait three hours to get a product, go to Amazon. That's something we do. Now, thankfully they don't necessarily operate in our space. Like, you know, don't sell power drills like we do. Do you notice that sales actually go down for items that have been locked up? Not necessarily. There are some categories where that is true.

43:37There's also many, many categories where actually sales go up because you're in stock. That's interesting. I hadn't, I hadn't thought about that, but that makes a ton of sense. It's funny when I go into pharmacies and it's all locked up, I always say to myself, I'm just going to start shopping online for all this stuff, but I never actually do. I'm always back in the pharmacy like every week, but I'm curious, you mentioned Omni, like what is the sort of modal mode, modal mode of shrink when we're talking about the e-commerce context?

44:09There's a couple of ways. I mean, a lot of this falls back to payments, fraud, you know, credit card fraud, gift card fraud. You know, the payment process oftentimes is the way that they're defrauding the Omni space. There's a, to use your word, a niche piece of people buying product, taking the product out, using it, putting something back in and then doing returns. So they get, they get back on the return side. So they're getting credits for the product that they actually have and then send back to get their full refund price on. So that's a part of the business that we deal with in many cases that we're working through,

44:42but it's typically around the payment side and then the gift card and credit card fraud. Isn't there some like e-commerce, like incidents for people where they, they're like, I want to return this and they'll get the refund and they're like, but don't bother sending it back. It's not worth it for the ingest. Oh, sure. Yeah. Sure.

Supply chain and distribution vulnerabilities

44:58I realize we've been very focused on the retail side of theft, but can you talk a little bit more about what happens on the backend with distribution? Because of course, you know, you're shipping a bunch of stuff from its production center over to the store itself. I imagine there are many, many avenues along the way that a smart criminal could exploit. Yeah. It's growing to be honest with you. I think there's, I would say three main modes go back to the modal piece of it, but like there is pure diversion.

45:29So whether that's in route from vendor into, if you're an importer that, you know, bring it into the U S you go into your transload facilities, your port facilities. There's people that divert full trailer loads back someplace else from that port could be back onto a container ship to go right back over someplace else that it's been stolen. There are break-ins in terms of, you know, actually just as, you know, truck drivers drive eight hours across country and they got to park their trailer somewhere. And during the time they're sleeping, they're breaking into the back of the trailer and,

46:00you know, just taking the boxes off the back. And then there's the one you mentioned a little bit earlier, which is the diversion on the supply chain side back out. So, right. We're seeing a lot of like, you know, fraudulent bill of lading, fraudulent pickup paperwork. AI is playing a space in this where they're able to kind of duplicate some of the capacities that allow a driver to walk, just drive straight in and say, I'm here to pick up trailer one, two, three, four, five. And they dribble right out because their paperwork looks really real. Now we're moving away from that with the electronic billing and some of the, you know, the new ways that we're dealing with it, but it's not necessarily the scheme that's new.

46:35It's the volume that seems to be new because it's a very difficult thing to go after. Rail has become an issue. Rail has definitely become a bigger issue over the last probably five or six years where we're seeing, you know, as the cars are parked in yards, they're being broken into by mobs of people that just kind of strip them down for what's in it. But they have really good intelligence, which is interesting. So, you know, we think they have people working inside the companies, the shipping companies, the trucking companies, because they don't hit every trailer or every car on the rail.

47:07They hit the car on the rail that has the product that they really want to go after. And so whether that's firearms, whether that's electronics, connected devices, you name it, there's a lot of, I would say, a kind of a new avenue opening up on the rail space. And a lot of dead track, by the way, out there, too. So, like, it's wide open. It's interesting you mentioned, you know, showing up with a fake invoice or a fake bill of lading. I wonder if you, like, put on an orange smock, et cetera. Like, how much, you know, you just, like, just blend right in and, like, fit in.

47:39And no one, no, I'm sure people are trained to be suspicious. But you mentioned AI, like, how much of, like, the tools, I'm sure there's, you know, we talked about cameras that could theoretically detect when someone has put something in a pocket, et cetera. But the tools that we call AI, like, have you found uses for them in, I guess, sort of offensive deployment, whether the models can autonomously just scan through Facebook marketplaces and look for anything that we at Home Depot had found suspicious?

48:12How much sort of have you found that the models can be sort of applied towards general tasks and find helpful info for you? Yeah, look, I'll say it this way. We have more cases than we can investigate. And so for us, it's an efficiency play, right? So the more we can shorten the duration of these cases, like, our typical ORC case takes about 70 days from discovery to closure to handing off to the police department. And so if we can compress that timeframe, we can turn more. And so we believe that the video, we just replaced our entire video analytics, our video management system in all 2,300 stores to an upgraded version that allows us to now put edge analytics on our cameras.

48:54The ones we have, you know, doesn't get necessarily to the point where you're talking about where this action or this set of actions now becomes suspicious and identifies somebody. We'll get to that. There's a place for that. I just don't have enough cameras in all my stores to do that. But the cameras that I do have, we are putting edge analytics around there that help us identify persons that were, you know, walking in this store and like they were, you know, lingering in this space too long or they were avoiding associates or they were in a place where they shouldn't have been. That's definitely out there. You mentioned the web crawling, you know, that's out there.

49:26That capability is out there. We have our own company that does web crawling and identifies these things that absolutely looks for all that. So anything we can do to kind of like compress that investigative cycle is how we're using AI to deploy against the bad actors that are out there today. You know, obviously like shoplifting theft, it affects all of us. It hurts your profit. It hurts my experience. It probably raises my prices, et cetera. There is a cost that we have to pay for taxes to increase the amount of police capacity, et cetera.

50:00This is a, you know, classic example of very bad externalities for almost everyone involved. And yet, you know, we see like this sort of like public backlash towards video cameras and so forth. There's been the last month. Everyone's talking about the flock cameras, et cetera. What do you perceive as the sort of appetite among law enforcement or the politicians that would have to set laws to actually move the dial, et cetera, on some of this?

Legislative changes and federal action

50:28What's in today in 2026? Well, what I would tell you is I am super bullish on where this is going. You know, we talked about Inform, you know, which was probably the first major ORC-driven act out there. We are now working on Coworka. Coworka is the Combating Organized Retail Crime Act. We are, Home Depot, retail in general has been a supporter. This is actually a very bipartisan act. It's passed the House. It has been attached to the NDAA. It's waiting on the Senate to sign it or to pass it.

51:00The president will sign it. He's already indicated that he will. This is like literally the first Organized Retail Crime Act at the federal level that provides resources, prosecutors, coordination centers, defines, you know, changes to USC 182314 that says here's how you have dedicated federal resources to go after this. Because here's the issue. This is not a local crime. This is not a – it happens in the county of Cobb here in Georgia. It goes to Cobb and it goes outside the state of Georgia and it goes into South Carolina and it goes into North Carolina.

51:31That is now a federal crime. This is interstate commerce. This is interstate transportation of stolen goods. All these things. Yet there's no federal resources dedicated to this. So this gets ORC, this gets cargo theft, this gets gift card and payments fraud all wrapped into one bill that is going to really change the way we as retailers can address this problem of organized crime. So the short answer is absolutely, I think the tide is changing. It's not just one-sided. There's, I want to say, 100 to maybe 200-plus House sponsors, both from the Democrat and Republican side.

52:06There are many, many bipartisan sponsors in the Senate for Coworka. There are 35-ish states that have organized retail crime task forces led by their attorneys general, both in Democrat and Republican states. So seven years ago, I was doom and gloom on this. Like nobody was taking this seriously. Nobody thought this was a big problem. This was petty shoplifting. This was not a thing that anybody really wanted to go on. In fact, in many cases, I think you guys know it was decriminalization was happening, lots of defunding the police talk that was out there.

52:39I think that this has helped us move much more in the right direction over the last couple of years, particularly. What is the state of the art with facial recognition? What are the expectations that people should know when they're like walking into a major public space, the degree to which either the cameras in major retail establishments either are able to or are able to identify who they are and how long that data is stored and so forth?

53:10That's a conversation that could probably go for another two hours. I would say that at the end of the day, video analytics in general are getting really, really good about recognizing people. And we don't talk about specific technologies that are out there. I'm not an expert in facial recognition, so I don't know. What I would say is that I think it's fair to have conversations about privacy. It's fair to have conversations about misuse. It's fair to have conversations about balancing the good versus the bad that can come from any technology that's out there. But I'm probably not the person to really talk about facial recognition.

53:42All right, Scott, Glenn, thank you so much for coming on All Thoughts. Really appreciate it. No, thanks for the time. I appreciate you guys.

Technology and the future of security

54:01So, Joe, that was a fascinating conversation. You definitely helped me understand the whole lockup issue. I hadn't considered that. I kind of assumed that sales would go down because so many people would be inconvenienced and you just walk away and say, whatever, I'm going to get my toothbrush from Amazon. But if the inventory isn't there anyway because people are stealing it, then that's a lost opportunity for sale. The other thing that stood out for me is there are some slightly dystopian aspects in there.

54:31So the idea of, you know, videos with edge capabilities like might be looking at your behavior and saying, classifying this person as a risk. Like, oh, this person has been standing over in that corner for a while, looks kind of suspicious. That doesn't sound great. The other thing that was very briefly mentioned is this idea that, well, maybe there's a way around the lockup program where you could just scan a QR code from your, you know, I don't know, Walmart or Home Depot loyalty app. And it would automatically open the shelf for you.

55:02Yeah. Which sounds very convenient. Not very convenient, but more convenient if you're a shopper, a regular shopper at those stores. But on the other hand, you're kind of getting close to an almost identity system for shopping. All great points. But yes, you know, it does feel like we're probably going to increasingly be headed in that direction. That whether we want to or not, the technology itself will be the driver. Like, if edge AI works, if you could just have a model embedded onto the camera itself that could just say, identify suspicious behavior in real time, it will be implemented.

55:39Right. Like there is people might complain, but if the technology exists, it will eventually be implemented. I'm very anti-shoplifting. So I think like, you know, and like, I don't really. I think, you know, things would be better if there were less of it, et cetera. And I'm not particularly worried about like, well, if I'm in a public space. But what if you just want to stand around for a couple of hours admiring the power tools? You know, the person comes by. No, look, there are obviously clear issues that are going to arise and they're going to be like very uncomfortable and unsettling.

56:11But I believe that like the technology will lead the way rather than anything that we like prioritize. Here's the thing. I think the question you have to ask of the technology is whether it leads to good outcomes in the forms of more people being caught. Because part of this is like, OK, you can install surveillance in the store. You can stick tags on every individual item. But if security can't actually stop people from exiting the store with stolen goods because of liability issues, then it's not really doing that much.

56:44Right. Maybe it'll help in the investigation. But then you're still dependent on a potentially strained police force actually taking up the case and using the evidence that you've gathered. It does feel he used the term whack-a-mole. And I feel like one of the meta phenomenons that has happened is over time shoplifting or theft has switched on these various online frauds, et cetera. But you would think like, oh, well, if you just get rid of the retail stores, then that takes care of the problem. But the crime finds a way and new forms of crime will emerge.

57:17And one day we'll probably have robot security guards who don't have like a personal safety issue because it's a robot and they'll like reach out and comprehend the person. But then there will be a theft on the robot supply chain and so forth. And like it'll probably never go away. But it was interesting. Maybe the robots will need liability insurance. You don't know. They very well. They very well might. All right. But the robots will be shoplifters. That's right. The misaligned, misaligned robot security guard. That bolt over there is really shiny. Yeah, that's right. All right. Shall we leave it there?

57:47Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Erman. Dashiell Bennett at Dashbot. Kale Brooks at Kale Brooks. And Kevin Lozano at Kevin Lloyd Lozano. And for more OddLots content, go to Bloomberg.com slash OddLots. We have a daily newsletter on all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely

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