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Rise of e-tailing brings rewards and risks

At a glance

  • Changing retail landscape offering new opportunities
  • Although new and more complex risks are arising
  • Zurich’s insight and high service levels are helping brokers protect their customers

Nowhere has the digital revolution had a greater impact than on Britain’s high streets. Changing consumer behaviour and the tough economic climate has seen some of our most familiar shops disappear.

The demise of Woolworths, Comet, as well as a myriad of smaller retailers, has left the number of empty units across the UK at an all-time high. According to the British Retail Consortium, almost one in eight shops on Britain’s high streets and malls now lay vacant. This is no retail apocalypse, though – but rather a period of change. For savvy operators, this transformation has brought with it huge opportunity.

Retail statistic

(Source: British Retail Consortium (BRC) (May 2013))

John Lewis, one of the standout retail successes of recent years, is even planning to expand on the high street. By moving strategically since 2008 to become a multi-channel retailer, its investment in technology and drive to duplicate its enviable customer service record online has resulted in 27% of all John Lewis online sales now using its ‘click and collect’ service.

And in 2011, it was the first UK retailer to introduce free wi-fi in its stores – adapting to the trend of consumers to ‘showroom’ whereby customers are encouraged to check products in store but then buy their wares online. ‘Hybrid’ operations such as this – a integrated high-street and online business model – may be the future.

New markets, new opportunities

Both smaller independents and large retailers have benefited immeasurably from online distribution and social media, allowing businesses to reach, sell and service new markets across the world.

To be resilient and remain competitive, larger corporations and SMEs alike have kept their focus resolutely on customers as they’ve plunged into this multi-channel world.

As consumers, our level of choice is unprecedented: we can get what we want, when we want it and, increasingly, choose from new payment systems, as well. Retailers are making this convenient and consistent for us, at every customer touch point we use.

Why use Zurich?

With its established relationships with major retailers and their brokers, Zurich has the professional and regional insight – as well as the technical underwriting expertise – to competitively cover the major causes of loss and the risk that customers face, with its high-levels of broker service.

For the latest retail insurance products from Zurich, visit BrokerZone.

But adapting to these changes has not been easy and retailers now face a growing complexity of risk, which they can’t afford to overlook.

Inadequate cover for new services

A growing focus is on differentiating the high-street experience and offer. New shop concepts, such as ‘dark stores’ designed for internet shoppers, temporary ‘pop-ups’ and ‘try before you buy’ are a new breed with a different approach to retailing and altered policy needs.

For larger companies which hold customer information and payment details online, hacking or loss of data is a huge risk, especially for online only operations. The balance between public and products liability is also impacted as e-tailers tend to have higher product risks but lower public or theft risk. Stock cover is always crucial, and liability for online retailers is a specialist, complex area.

But with their greatest business threats being continued economic stagnation, rising operating cost pressures and inadequate cash reserves, brokers need to be proactively checking they are still properly covered. For instance:

  • Product / service diversification can affect insurance coverage as businesses may diversify beyond current policy level coverage. Retail insurance may not include e-tailing.
  • Market diversification (e.g. exports) can open up new exposures, for instance, in terms of different product liability regulation
  • Changing operating models, such as shifting to a “contract worker model” or new approaches to shift work, can lead to new risks and employers’ liability exposures

The changing payments market is another area of risk. The British Retail Consortium’s Cost of Payment Collection Survey 2012 revealed that corporates faced average charges of 38p per credit and charge card transaction – 25 times more expensive than cash.

Payments in cash were down 10% year on year, credit and charge cards down 3.4%, but debit cards up 3.2%. Compare that with the growing area of non-cash, non-card payments, which includes PayPal and will in future incorporate growth areas of mobile wallets and the expanding mobile payments market. In 2012, they accounted for 5% of transactions but 4.5% of costs.

A need for broker advice

The ongoing transformation of our high streets – Retail Futures 2018 predicts a further 22% decline in high street shops in the next five years – and the corresponding rise of “e-tailing” gives us tangible evidence of the challenging dynamic between opportunity and risk.

While the successful retailers prove there’s life online and on the high street, brokers and insurers must work together to give customers the comprehensive protection and guidance they need in this period of transformation.

Image © Getty

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