CVS – How to Stop a $45 Billion Crime Spree – The Journal.
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Ryan Knutson: A curious type of video has been popping up on YouTube over the past few years. In these videos, people walk into stores like CVS, Target, or TJ Maxx, and fill up garbage bags with goods, and then just walk out.
Rebecca Ballhaus: I think those videos beg the question of why is nobody stopping them? How can they just walk out of the store so easily with all these stolen goods? We’ve heard from many, many readers who have said, I have seen this happen, and I’ve always wondered why it’s happening.
Ryan Knutson: That’s our colleague, Rebecca Ballhaus. She decided to get to the bottom of this brazen type of shoplifting. And what she found is that many of these shoplifters aren’t just stealing for themselves, they’re part of organized crime.
Rebecca Ballhaus: It’s not one-off thieves entering a store and taking whatever they want. It’s a much more systematic targeting of these stores. They’re stealing because they have become part of a larger operation that is giving them essentially a list of things to go get and then sell back to them.
Ryan Knutson: And a big reason this is happening is the internet.
Rebecca Ballhaus: It used to be that organized retail crime was ending up in flea markets and pawn shops, or just being resold on the street. And that’s still happening to a degree, but the internet has increasingly become the most prominent way of reselling stolen goods, because it’s just much easier to do.
Ryan Knutson: One trade group estimates that shoplifting costs US retailers $45 billion a year, which is up 50% from a decade ago. And retailers are investing millions of dollars to fight these crime rings and they’re even hiring their own crime fighters. We talked to the guy in charge of this effort at CVS.
Ben Dugan: I’m Ben Dugan, I’m the director of organized retail crime and corporate investigations for CVS Health.
Ryan Knutson: So instead of like, Law & Order SVU, it’s like, Law & Order CVS?
Ben Dugan: Exactly. Something like that.
Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I’m Ryan Knutson. It’s Wednesday, September 15th. Coming up on the show, inside CVS’s battle with a new breed of shoplifters.
One reason shoplifters are able to walk out with garbage bags full of stuff is because most stores actually don’t try that hard to stop them in the act.
Rebecca Ballhaus: Store employees are instructed not to try and interfere because it’s a security risk for them. They don’t want people getting into altercations with shoplifters who could turn violent. So people who are working in stores are told don’t apprehend anybody.
And so we heard some accounts from people who said that they’ve been in a CVS when a shoplifter has come in and just grabbed a bunch of stuff. And the store employee has just sort of said, please don’t. But there’s not much else that they can do beyond that.
Ryan Knutson: These organized crime rings rely on low-level thieves who steal the products and are known as boosters.
Rebecca Ballhaus: Then the boosters will sell them usually to what’s called a street level fence. And that person will meet the booster, will load up the trunk of their car with the goods. Pay them five to 10% of the retail value, and then be on their way.
Ryan Knutson: The fence, the person who buys the stolen goods, usually sells them yet again to a higher level fence. And ultimately, these items end up in warehouses.
Rebecca Ballhaus: There was one case that we looked at in Texas where stolen goods were ending up in this house that had been just completely turned into a warehouse, complete with an elevator that was actually moving goods between floors. And you just see shelves crammed with boxes that appear to be stolen from Home Depot and other home goods stores.
Ryan Knutson: Wow. So these are like, very sophisticated sounding operations.
Rebecca Ballhaus: Yeah. It’s absolutely a fairly professional operation, as far as a crime ring goes.
Ryan Knutson: A lawyer for the man who allegedly ran that operation has said there was no direct evidence he was aware of the thefts. But the problem has gotten even worse during the pandemic. CVS says that reported thefts have gone up 30%. And Ben Dugan, who leads the company’s investigations, says he’s doubled the size of his team in response.
Rebecca Ballhaus: Right now, we’re investing tens of millions of dollars a year, I would say, easily, to combat this problem.
Ryan Knutson: Ben has studied how these shoplifting rings operate.
Ben Dugan: They’re really professional thieves. They work in teams. They use distraction techniques to distract the cashiers away from what they’re doing. They use what’s called booster bags. These are these bags that are lined with tinfoil to avoid electronic surveillance. They steal 30 to $50,000 a day.
What we’re looking at are guys that steal, in bulk, specific products that are small, have high value, and are easily shipped. Because you can’t really ship too much stuff. At a heavier weights, it cuts into their profits. So light, small, expensive.
Ryan Knutson: So what’s an example of light, small, and expensive?
Ben Dugan: Predominantly, it’s over the counter medications, right? You can put in there, razor blades. They’re metal, but they’re still light. They’re very, very valuable. That’s why when you go to the store to buy a razor blade it’s locked up right behind this locked shelf, because it’s one of the most highly desired products from organized retail crime crews. So teeth whitening strips, very, very light, very expensive. Those types of products is what they target, mostly.
Ryan Knutson: Something about teeth whitening strips and razors seems very mundane for an organized crime ring.
Ben Dugan: Well, it’s a job. And I’ve had the opportunity to interview so many of these guys, and that’s how they treat it. Like, hey, it’s just a job. I get up in the morning, I have my 12 to 15 stores to go to. I’m going to hit my stores, get my product, ship it out, and then start again the very next day. So it’s not this real sexy type crime.
Ryan Knutson: But Ben isn’t interested in stopping the individual boosters who were often desperate for money and just a cog in a larger system. He wants to go after the crime rings themselves. But in order to do that, to find the people at the very top, he has to start by watching the boosters to see where they go after they fill up those garbage bags. That means that Ben spends a lot of his time staking out different CVS stores.
Ben Dugan: We’re sitting in unmarked cars in our street clothes, blending into whatever we need to blend into.
Ryan Knutson: How do you blend in when you’re in different cities trying to dress the part?
Ben Dugan: Well, I mean, as a diehard Yankee fan, I have to wear a Red Sox hat when I’m in Boston, which is painful to me.
Ryan Knutson: That must hurt.
Ben Dugan: But we’ll do whatever we need to do to blend in to make sure that … someone who’s going from store to store, who’s involved in criminal activity, at times, they’ll make sure no one’s following them. So you want to make sure that you can safely maintain the surveillance and be safe.
Ryan Knutson: Last year, Ben and his team were trying to find a man they kept on hearing about on the streets of San Francisco. His name was Daniel the Medicine Man. Rebecca had talked to investigators and law enforcement about it.
Rebecca Ballhaus: Investigators had been hearing for quite a while about someone named Daniel the Medicine Man. And they were trying to figure out who that might be.
Ryan Knutson: So one day last September, in San Francisco’s Tenderloin neighborhood, Ben and his team were sitting in their cars outside a CVS, waiting for a thief to enter the store.
Rebecca Ballhaus: And they kind of have an idea of what to expect, because at that point, the CVS team has been trying to track who these boosters are for weeks now, by looking at store video and monitoring reports of thefts. So they watched somebody go into a CVS. He fills a garbage bag with around $1,000 worth of allergy medicine and other products. And then he walks out.
And he does the same thing at two other CVSs that they follow to. So then they follow him to this fence who’s on the street with a pickup truck. And the fence buys the stolen goods from the booster. And then the CVS team follows that fence to a storage unit.
Ben Dugan: And then that product was then transferred to the warehouse facility in Concord. And then in Concord, it was completely broken down, cleaned … I mean, we have indicators, antitheft stickers, and some other stickers that other retailers use on their product. That is cleaned off then repackaged.
Ryan Knutson: The next step was figuring out who was renting the warehouse units.
Rebecca Ballhaus: They looked up the public records of the warehouse to see who was renting the space. And they saw this name, Deluxe OTC. OTC in many cases, is over the counter, which is the kinds of products that CVS sells. And when they looked up who ran that company, Drago’s name is in public records.
Ryan Knutson: Drago. Full name, Danny Drago. also known as Daniel the Medicine Man. Ben, working with law enforcement, had found his target. The guy he kept hearing about.
Prosecutors alleged that Danny and his wife, Michelle Fowler, were running a robust operation out of this warehouse, just a 30 minute drive outside San Francisco. How big of an operation did Drago run?
Ben Dugan: Well, I mean, he basically had $10 million in product on him at the time the police took the enforcement action.
Ryan Knutson: After the break, how investigators say Daniel the Medicine Man used the internet to profit from stolen goods.
Prosecutors alleged that Daniel the Medicine Man had been using a ring of nearly two dozen boosters to steal up to $39,000 worth of stuff a day. And they wanted to know more about where that product was going. The answer for many of the goods was Amazon. Drago and Fowler had at least two of their own stores on Amazon, and they also sold their goods to other Amazon businesses.
Ben Dugan: He maintained a website that he sold to the top sellers on Amazon. So anyone who was a big Amazon seller, he would reach out for, independently, and say, I’ll give you all the product that you need.
Ryan Knutson: CVS estimates that Drago and Fowler we’re pulling in $5 million a year selling stolen goods. Last fall, they were charged with a number of crimes, including criminal profiteering and money laundering. They both pleaded not guilty.
Ben Dugan: He’s on the top of the scale, there’s there’s no doubt about it. Anyone who’s can sell tractor trailers full of stolen merchandise is a large criminal organization, right? But there are, right now, dozens of people that operate at the same level as Drago does.
Ryan Knutson: Why do operations like this do so well?
Ben Dugan: The internet really is what’s driving the price, right? You can sell … the way that consumers shop now, especially since COVID, everyone shops online. So you’re shopping online for a razor blade and you see it for half price. A lot of people aren’t going to understand that that’s stolen and hey, what a great deal, and buy it. Never knowing that it’s connected to a criminal organization or potentially stolen.
And these guys can afford to sell it so cheap because they’re unfortunately paying people that are very desperate, who are stealing it, very little money for it.
Ryan Knutson: And so it was like any business. When your inventory is free, because it’s stolen, your costs are low. And therefore, you can make big profits.
Ben Dugan: That’s exactly right. And an endless supply.
Ryan Knutson: How big of a role do e-commerce companies like Amazon play in this problem?
Ben Dugan: It makes everyone who has a mouse or a computer an entrepreneur, where they could steal product and sell it immediately to massive consumer bases. So Amazon and eBay and all e-commerce platforms have opened this market up to both good and bad actors.
Ryan Knutson: A spokesman for Amazon said the company works with law enforcement and retailers to stop bad actors. And that it had spent $700 million last year to combat fraud on its platform. But Rebecca says that investigators like Ben want Amazon to do more.
Rebecca Ballhaus: Investigators say that they don’t feel like Amazon is doing enough to vet who their sellers are or what their sellers are selling. Amazon, for its part, says that they’ve really ramped up efforts to try and combat the sale of stolen goods on its platform, especially since last year.
They stated that they try and conduct interviews with all their sellers to verify what their identity is. And they ask for a range of identification materials, like bank account numbers and government IDs and that sort of thing. So Amazon is making, I think, a bigger effort to address it. It’s just one that investigators say still fall short.
Ryan Knutson: What do retailers like CVS want Amazon to do?
Rebecca Ballhaus: What CVS points to as the model of cooperation is eBay. eBay also has a problem of stolen goods being sold on its platform, but they have a tool that allows retailers to look up some identifying information about sellers if they suspect that they’re selling stolen goods. And they also allow retailers to request sales transactions and other details from eBay without a subpoena or a search warrant.
Ryan Knutson: The Amazon spokesman said that in order to protect user privacy, the company won’t hand over seller information to retail investigators without a subpoena. Obviously, this is a really big issue for companies like CVS. But what do you think it means for the average consumer that this is happening?
Ben Dugan: I think we have to first talk about safety. Not only safety in the stores, but you really have to be careful about buying certain products, like over the counter medicine, online. There’s no product integrity online. Do you want to buy baby formula or infant formula that was in the hands of a criminal organization, in the back of somebody’s trunk for a month and now subjected to different temperatures and with no safety protocols at all? Or other over the counter medicines that you put in your body when you’re not feeling well? There’s no safeguards for that.
So the first thing I would say is, be careful when you’re buying such sensitive stuff online. The second thing is, if a deal looks too good to be true, it probably is, right? When do you get this much product in bulk at that price? I mean, if someone is selling it online for less than the manufacturers can actually make it for, clearly, there’s a problem.
Ryan Knutson: What’s the hardest thing about bringing these kinds of crime rings to justice?
Ben Dugan: The wheels of justice grind very slowly. Now you have to put the case together, present it to a federal prosecutor, get their buy in. Get the Department of Justice or an agency to act. That takes a lot of time. And all that time in the back of your mind, you’re thinking, man, I’m losing $100,000 a day. And really, if we can get some of this stuff prevented or get some of these cases closed quicker, financially, it would be a great benefit for us.
Ryan Knutson: That’s all for today, Wednesday, September 15th. The Journal is a co-production of Gimlet and the Wall Street Journal. Additional reporting in this episode by Shalini Ramachandran. Thanks for listening. See you tomorrow.