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Retail risks in the turbulent 1990s.

WHEN EXAMINING risks in the world around us, a seemingly unlikely cause for alarm is the local retail establishment. Going shopping is hardly perceived as a dangerous activity - by customers at least. Retail risk managers, however, can name a plethora of reasons why the opposite can be true. Slips and falls in the aisles, incorrectly stored merchandise, hurricanes, riots and even overzealous security guards are all dangers in retail risk management, a topic discussed at a recent College of Insurance seminar.

The retail environment is undergoing radical change; gone are the days of corner stores and even single outlet stores. The retail industry today comprises the superstore or conglomerate with many outlets in many countries. The fact that so many customers enter the store every day creates a huge liability. Since retail is a people-oriented and customer-service driven industry, not only must the customer always be right, but he or she must also be safe.

Retail risk managers must ensure not only the basic safety of stores, but also that all stores and outlets are in compliance with the Americans with Disabilities Act, that security personnel are trained in how to handle suspected shoplifters, and that the customers and employees are not in any danger in the event of a disaster. Of course, more so than any other industry, retail establishments must remain open - and selling - even when faced with a disaster.

Because of the large number of claims, some retailers have opted to self-insure. Bruce Hackerr, director of risk management for Toys "R" Us, noted that his company is somewhat unique in the retail industry in that it handles general liability claims inhouse. "We decided about six years ago that we could probably do a better job than the insurance companies with the type of claims we were experiencing in our stores." In his experience, insurers tended to focus on claims over $5,000, rather than on the smaller claims that could often be easily settled, noted Mr. Hackett. "We started with some of the property damage claims and grew to the point where we now have a significant self-insured primary layer," he said.

The emphasis - and in fact the key to the success - of this program is found in the immediate contact with the customer, which helps maintain control of the claim. The store where the incident occurred must notify the corporate risk management department by E-mail within 48 hours after an incident, and within 24 hours the risk management department then notifies the customer by telephone. Prompt personal contact develops good customer relations and shows concern. In addition, when the customer hears a Toys "R" Us representative on the phone, he or she is likely to be willing to settle for a smaller amount - often in the form of a gift certificate rather than cash - as opposed to the raised expectations that can develop when a customer hears an insurer on the line, said Mr. Hackett.

The company has a PC-LAN system to handle claims automatically, which has increased productivity. Conservative estimates indicate that "the company is saving approximately $500,000 per year by handling general liability claims in-house," said Mr. Hackett. The company has also set up its own code system for the stores, which is more exact than the codes for general liability used by insurance companies. These codes help identify variables such as where in the store an accident happened. Of approximately 10,000 incidents involving customers last year, most occurred in U.S. stores and only about 1,000 were paid.

Workers' Compensation Woes

IN ADDITION TO customer claims, there is also the problem of dealing with the workers' compensation system. Retail has a unique problem in that employee turnover is incredibly high - seasonal staff, students and those in-between career jobs are not likely to stick around long enough to learn extensive safety rules. Training must therefore be kept simple and based on common sense.

According to Mr. Hackett, Toys "R" Us is not self-insured for workers' compensation. But, as with general liability issues, the company tries to keep costs down by getting in contact quickly with the employee as soon as there is a problem. "Be sure to explain your company's workers' compensation policy to your employees, or someone else will," explained Mr. Hackett. Toys "R" Us has a toll-free number for employees to call with questions regarding workers' compensation. Since information is readily available to the employees, there is less likelihood of a problem developing with a disgruntled employee who decides to sue the company because he or she was unable to learn how to apply for workers' compensation benefits and became frustrated with the employer's lack of concern.

Through the implementation of a charge-back program that offers a rebate to a store for bringing an injured worker back within 80 days (with a doctor's release), Toys "R" Us was also able to boost return-to-work percentages. This program has helped injured workers keep their jobs and avoid being replaced.

A Centralized Perspective

ON THE OPPOSITE END of the spectrum, Nathaniel Lord, director of risk management for Fedco Stores, sees his function as risk manager from a much more centralized perspective. All of the Fedco Stores are located in Southern California, but that in itself is a huge problem. California has the highest incidence of workers' compensation claims in the country, calling for a lot of proactive effort to reduce costs in this area. Fedco is selfinsured for workers' compensation because it gives them greater control over their programs and facilitates employee communication.

Because of the large size of each store (with between 500-600 employees per store), the company is able to provide each store with a full-time nurse. This in turn acts as "a buffer between myself and the workers' compensation system," according to Mr. Lord. Each store also has a fulltime safety coordinator and is visited regularly by an engineer. The company also offers hazardous material training for employees because of the over 25,000 items handled in the chemical department. Relatively rare in the retail environment, this is an additional proactive measure to curb the number of injuries and workers' compensation cases.

Ninety-five percent of the claims in the liability area are slips and falls. The way each of these situations is handled is obviously important. "We have found that we basically have a 10-minute threshold to investigate the evidence at the scene before it disappears into the woodwork forever," found Mr. Lord. Like Mr. Hackett, Mr. Lord also advocates taking an aggressive approach to the investigation in order to deter lawsuits.

Caution With Security

WHEN HIRING SECURITY personnel - who are ultimately charged with protecting the safety of the customers - risk managers must beware of those who appear overzealous and prone to excessive force, according to Mr. Hackett. Because of the sensitive nature of the work, guards must use extreme caution when approaching a suspected shoplifter. A guard must see a customer both select and conceal the merchandise, noted Mr. Lord. Therefore, a company cannot rely exclusively on a camera system, which may not show an alleged shoplifter actually selecting the merchandise. Additionally, the security personnel employed by Fedco are allowed to use "reasonable force" to detain an individual, but must be backed up by other employees to make an arrest. If an arrest is made, Mr. Lord encourages retailers to follow up by prosecuting the individual.

Mr, Lord noted that Fedco avoids making arrests for insignificant amounts, using other means of dealing with petty criminals. Of course, any procedure such as this must be executed with great caution. "It's very important to train guards to know what to look out for, such as the difference between a thief and a person who brings an article of clothing into a store to match it up with another item," said Mr. Lord.

The need for a comprehensive disaster recovery plan is vital for the retail community as well. "It is important to keep the business going and maintain market share," according to Richard Klares, senior vice president of Sedgwick James of Connecticut Inc. Strategies that cover everything from vendor deliveries to media relations must be in place to ensure business continuity, noted Mr. Klares.

The need for such a plan came dramatically into play when one Fedco store was looted during the Los Angeles riots last spring. Fedco had the single largest loss as a result of the riots - $10 million in missing inventory and structural damage due to fire and water.

However, after only 18 days, the company was able to repair, restock and reopen the store. Although no amount of planning can prepare for a disaster of this magnitude, Mr. Lord noted that good relations with vendors and construction crews helped Fedco reopen the store quickly. One seemingly common sense item that proved absolutely vital was cellular telephones, which allowed Fedco's risk management department to communicate with outsiders, even while the neighborhood was crumbling around them.
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Title Annotation:retail liability
Author:Kehl, Joyce L.
Publication:Risk Management
Date:Feb 1, 1993
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