The FTC Just Cracked Down on Sales of Stolen Merch Online. Here's What It Means for Brands.

Among the many dark developments of the Covid-19 health emergency were those YouTube videos of what’s come to be known as organized retail theft. Odds are you’ve seen at least one. A man strolls into a San Francisco Walgreens, fills a large trash bag with stuff, then rides out the front door on a bicycle. A gang of 14 masked shoplifters descended on a Louis Vuitton store in the affluent Chicago suburb of Oak Brook and, within minutes, made off with $100,000 worth of handbags and accessories. In Oakland, Calif., a posse of 80 shoplifters besieged a Nordstrom, stripped the shelves, then made a getaway in 10 vehicles. Loyalty Programs Could Be the Golden Ticket for Brands in a Down Economy The financial losses associated with these incidents are predictable enough (Target recently announced that it expects to lose $500 million next year due to "theft and organized retail crime")—but they’ve also become a genuine danger. In April, a shoplifter at a Pleasanton, Calif. Home Depot shot an employee dead as he tried to stop her from stealing an electric tool. As local police departments struggle to deal with the crime wave, retailers have responded with a variety of measures including facial-recognition software and locking up the merchandise behind steel grates or inside of glass cases. This week, however, a new law came into effect that pledges to addresses the problem at the Federal level. The Integrity, Notification and Fairness in Online Retail Marketplaces—shortened to the Inform Consumers Act—went into effect on June 27. It aims to reduce organized shoplifting not by arresting perpetrators but by choking off access to the platforms where they can fence what they steal. Stripped to its essentials, the law compels online marketplaces that host the resale of new or unused goods (sites like eBay, Amazon, Facebook Marketplace and Etsy) to require the sort of identifying information that criminals won’t want to disclose. In order to do business on these platforms, high-volume resellers (defined as those who sell 200 or more items or generate $5,000 or more in revenue per year) will now have to divulge a bank account number, tax ID number and verifiable contact information including a physical mailing address, email and telephone number. The burden to collect and maintain such information rests with online marketplaces. Ostensibly, the law looks like a logical response to an intractable problem. The sale of illicit merchandise (stuff that’s stolen, fake, expired, mislabeled, unsafe or banned by law) is a $600 billion business, according to figures from the Senate Intelligence Committee. Europe’s Organization for Economic Cooperation and Development estimates that fake and pirated goods now make up 3.3% of global commerce. But what will the new measure actually mean for retail and consumer brands? Will the law have real benefits or simply create more bureaucracy? Adweek sussed out five likely (or, at least, possible) outcomes. If you operate an online marketplace, your paperwork just increased It’s no secret that, despite their policies against it, online marketplaces are the unwitting channels between unlawful sellers and unsuspecting buyers. Many platforms already have mechanisms in place to filter out illicit sales. Some are more advanced than others. Amazon, for example, states that it has developed “advanced technology, including machine learning models, to identify and stop bad actors and bad listings.” eBay’s stolen property policy reads: “If you see stolen property on eBay, please contact local law enforcement immediately.” Beginning this week, however, voluntary self-policing is over. The Inform Consumers Act requires that the marketplaces collect identifying information, keep it on file and install a “mechanism that allows for reporting of suspicious activity.” “It’s putting the responsibility on the marketplaces themselves to police. That’s the new thing—the liability is on the marketplaces,” said attorney Alexandra Megaris, partner in the advertising and marketing law practice group of Venable LLP. Detailed seller information like tax ID number and working contact information “needs to be recorded and maintained in a way that you can prove to the FTC or State attorney general that you're you have this information,” she said. If you’re a brick-and-mortar retailer, relief may be headed your way. The Inform Consumers Act’s principal aim is to make it harder for criminals to resell what they steal and thereby prevent them from converting contraband into cash. If the law works as planned, retailers should eventually benefit in the form of fewer losses due to theft and also a safer shopping environment in their stores. “The law is good news for retail stores,” veteran brand strategist and consultant David J. Deal said. “No business wants criminals coming in and doing a smash and grab.” A hoped-for reduction in organized theft is, unsurprisingly, the driving force behind retailers and their trade groups lining up behind this legislation as it moved through Congress. The National Retail Federation mobilized its members via a Voter Voice page though which they could write to their representatives to support the measure. Major retailers including Walmart, Target, Nordstrom, Lowe’s, JCPenney and Home Depot also signed an open letter written by Buy Safe America to make their support a matter of record. “Enacting this legislation will …provide law enforcement with additional tools to stop and prosecute these criminal rings from selling illicit goods and who are putting retail workers and customers in harm’s way,” the letter read. If you’re a consumer brand, the law may lessen your counterfeiting problem Obviously, no consumer brand wants to see its products stolen from retailers’ shelves. But the more salient news for them is that the law also aims to curb the online sale of counterfeit merchandise—an old and historically intractable problem. A recent report from the Library of Congress found that counterfeit goods (most of which enter the U.S. from overseas) cost American businesses north of $200 billion a year—losses which also lead to corporations cutting 750,000 jobs yearly, too. And while fakes of high-end brands like Rolex wristwatches and Goyard wallets are the most visible end of the problem, counterfeiters also do a brisk business in products like Nike sneakers, North Face jackets and even pharmaceuticals. Faced with this problem, brands have historically been left to enforce their own intellectual property rights or simply hope that Customs and Border Protection would discover and seize illicit shipments—and endless game of whack a mole. Now, however, if a resale platform is moving fake goods, the Inform Consumers Act “has given the federal agency [Federal Trade Commission] and also state attorneys general and every state the authority to bring a civil action against the marketplace,” said Megaris said. In this respect, she added, brands without the legal resources of multinational may stand to benefit from the law even more. “Smaller brands [don’t] necessarily have a global brand-protection strategy, which is very expensive. And obviously the very big brands do, but it’s very expensive to do that. [So] the resources from the federal government” can now step in to protect them. Consumer brands might even get some in-store marketing back—eventually. One of the most visible effects of mass shoplifting events in the last few years has been merchants literally locking up merchandise behind steel bars or, in the case of pharmacy chains, inside of glass-front cases. While those measures might stem the theft problem in the short term, they also interfere with shopping and browsing. As Deal observed, if retailers “put all their merchandise behind lock and key, they destroy the customer experience. Nobody wants to shop in a fortress.” How Next-Generation AI Will Make Customer Service More Customer-Friendly But shelf fortification is just as big a problem for consumer brands, which “rely on merchandising and product displays to differentiate themselves,” Deal said. “That’s why they spend so much money on in-store promotions. And if all those products are put under lock and key, what’s the point?” Assuming, again, that the Inform Consumers Act curbs theft—at least to the point where retail chains are willing to release the goods from lockup in their own stores—“that will be better for everybody,” Deal said. Just don’t expect a miracle. When it comes to the mass shoplifting, it’s important to distinguish between local bad actors who hit up a local pharmacy chain to make a few bucks in illegal resale and the larger problem of criminal syndicates masterminding it. (Such groups will often hire ordinary people—“boosters”—to do the larceny for them.) “Crime rings connected to the drug trade, human trafficking and other forms of crime target big box stores, pharmacies, hardware stores, auto dealerships and other retailers to carry out sophisticated theft operations and operate across county and state borders,” Illinois Attorney General Kwame Raoul said a recent statement. So it’s important to note that while the Inform Consumers Act might well deter local offenders from stealing, it’ll probably be less effective when it comes large criminal enterprises. “The law will put a dent in smaller, regional players [who] quickly steal and then distribute stolen goods,” Deal said. “It remains to be seen how well the law will combat more sophisticated bad actors.” Megaris agrees. “Even if the FTC devotes significant resources to enforcing the statute ... bad actors on these marketplaces can certainly figure out a way to evade [the law],” Megaris said. “The same people that are selling counterfeit goods are going to be able to come up with a counterfeit document.”