Knowing the Unknowns
Preparation is best insurance against convenience store industry's many dangers
NASHVILLE, Tenn. -- Tornadoes. Robberies. Accidents big and small. As convenience store operators are well aware, the industry is exposed to an incredible number and variety of dangers on a daily basis. And more often than not, even the most rigorous planning cannot perfectly meet each challenge. But that does not mean retailers cannot up their odds, as participants at the recent CSP Leadership & Crisis Prevention Forum learned.
The group of retailers and suppliers traded war stories and best practices on a range of issues, from determining whether a business is fully insured against cyber assaults to prepping for a product recall.
As the hacking incident at Target this past winter showed, every retailer, no matter how big, is vulnerable to cybercrime. And recovering from an incident can be incredibly costly not only to a company's reputation but its pocketbook as well: The average cost of each cyber liability event has risen to $215 per record stolen, effectively doubling over the past two years, according to Stewart Van Duzer, first vice president at Federated Insurance, Owatonna, Minn. The average loss due to an event is $3.5 million.
"It's not a matter of if they can, it's when," said Van Duzer. "It is one of the biggest exposures you face." But most retailers have only processes to meet an assault, not insurance coverage to pay for the cleanup. He noted that cyber liability insurance premiums are typically higher for the c-store industry because of the volume of credit cards processed, and the application form is complex, but it is worth considering a policy with a minimum of $1 million in coverage.
Maverik Inc. is one retailer taking on the challenge. "As a company, we need to be in charge of our destiny," said Travis Goff, risk and safety supervisor at Maverik, North Salt Lake City, Utah, which has more than 260 sites in 10 states. The process of finding the right plan was tough--"It's so new, most brokers don't even understand it," said Goff--but the retailer is finally covered.
Now say the problem is a product recall--whether it is a manufacturer's item or a retailer's own private-label offer. Again, even big retailers can get tripped up by a lack of processes--consider the case of Ross Stores Inc., a discount apparel retailer that got slapped with a $3.9 million civil penalty by the U.S. Consumer Product Safety Commission (CPSC) for continuing to distribute recalled children's clothing, after it had already been fined for it. Costs in these cases can quickly add up--each sale of a nonconforming product can result in a $500 fine.
It is important that retailers keep close tabs on the origins of all products sold at their stores, which is of course easier said than done. "Sometimes your supplier may not even be identifiable," said Joseph Wheeler, partner at the Nashville law firm Cornelius & Cornelius, which counsels for meeting sponsor BIC Corp. "What documentation do we have and how can we be more diligent in obtaining it?"
For example, if a product is imported--which is very likely in the novelty category--the importer is required to provide a certificate of compliance to the supplier, said Wheeler, which includes the product description, the regulations it complies with, who the importer is and their contact information.
"You have to be very diligent in the homework you have done with suppliers," said Wheeler, "to make sure they have the required documentation and safeguards in place."
For the latest on insurance and recall procedures, as well as preparation for natural disasters and crime, see the July issue of CSP magazine.