As far as I know restitution is something the court orders you to pay. Probably what they are seeking from you is civil damages.
Not legal advice, just my two cents. I don't practice law in California or hold California licensure. If you need legal advice, please consult a lawyer who does.
I routinely had this problem when I was a public defender. To me, it doesn't feel right. How are corporations going to profit from our justice system? I remember the letters were a little scary and threatening. It almost feels like Walmart (and I've seen some others) is extorting the public with an apparent police authority. I used to send my clients to the American Civil Liberties Union. That being said, I've seen those letters since a couple years ago. Somebody probably fought it and lost. I don't think Walmart can effect jail time, but they may be able to screw up your credit. I would talk to the ACLU chapter in your region, I don't think they charge anything for a visit.
Based on your post, this is a civil demand from Walmart's attorneys. No cops, no case, .I generally advise ignoring the demand. You might want to have an attorney look at it to see if it is an extortion ttemt. Then you may do something to walmart.
The above is not intended as legal advice. The response does not constitute the creation of an attorney client relationship as this forum does not provide for a confidential communication.
Restitution is defined as the amount of money it would take to make the victim whole, aka the amount of the victim's loss. If all items were recovered undamaged and suitable for sale, restitution would be $0. The $500 sounds like a civil demand. The law allows retail establishments who are victims of theft to impose a civil penalty. This civil penalty is separate from any criminal charges that may be filed. I advise all my clients to ignore the letter. Brfoethey can enforce the civil demand they must first sue you in small clakms court and obtain a judgment against you. Because of the time and money involved this rarely, if ever, happens. Also, failure to pay the demand has no bearing on whether criminal charges are filed.
I see these letter sent to clients by corporations, in every shoplifting case I defend. Whether or not the merchandise is recovered, whether or not the criminal charges are dismissed. It does seem like extortion.
I advise my clients to ignore them. However, an attorney who posted above mentioned possible consequences to your credit rating. This could be an issue, though seems unlikely, but you might want to keep an eye on your credit reports.