Words of wisdom from our business insurance experts.
Clothing Store/Retailer Insurance: Understand the Risks and Coverage Options
Whether you’re a shopping addict or you just get groceries at the local supermarket once a week, you know how important retail is to the American economy. As of 2023, a total of 3,131,030 retail trade businesses were operating in the US, marking an increase of 2.3 percent compared to 2022.
But while retail stores are ubiquitous today, it’s crucial to remember that these stores are just as susceptible to risk as any other business. The dangers that the average retail store faces include injuries to customers and employees, property losses, cyberattacks, and many other threats. Because of that, people responsible for retail businesses should take time to check if their companies have sufficient insurance coverage.
Are you planning to open a retail store, or do you want the peace of mind that comes with knowing your previously-opened store has the right insurance in place? In either case, keep reading for a complete guide to the insurance needs of clothing stores and other retailers.
What is a clothing/retail store?
A retail store is simply any store that sells products to members of the public. Typically, retailers buy items in bulk through wholesalers and manufacturers before reselling them to consumers.
Of course, there are many different types of retail stores out there—and the type of store you run can have an effect on the insurance policies you need. Some of the most common retail stores include:
- Clothing stores
- Shoe stores
- Convenience stores
- Grocery stores/supermarkets
- Department stores
- Drug stores
- Gift shops
- Coffee shops
- Thrift stores
- Pet stores
Online stores and e-commerce businesses fall into the category of “retail stores,” as well. While these businesses don’t always have physical locations, they still focus on selling products to individual people.
What risks do they have?
Every business needs to have some type of insurance, including independently-owned retail stores. These are just a few of the “standard” risks that retail stores regularly deal with:
Injuries to customers
If your business has a storefront open to the public, there’s always a chance that one or more of your customers could get injured there—no matter how hard you work to eliminate safety hazards. When that happens, there’s a good chance that you’ll be responsible for their medical bills. And in some situations, you could even find yourself dealing with a time-consuming, expensive lawsuit.
(By the way, it’s important to point out that this is a totally separate subject from injuries to your employees. We’ll talk about that in a bit.)
Imagine that you run an electronics store, and a customer asks you to repair their laptop. That would generally be a mundane task, but what would happen if your employees accidentally damaged this computer during the repair process? In that case, your customer won’t just be unhappy—they’ll demand some form of compensation.
This is just one example of how businesses can find themselves responsible for accidents involving their customers’ property. Since customers can and do sue in situations like these, you’ll need an insurance policy offering financial coverage for both the process of repairing/replacing the damaged item and your potential legal expenses.
As a retail store owner, your responsibility to your customers doesn’t end when they leave your business. If you sell them a product that injures them or causes any other type of damage, you could be on the hook for medical bills or legal fees.
Based on the number of associated injuries, some of the most dangerous consumer products sold in the United States are:
- Stairs, landings, ramps, and floors
- Beds, mattresses, and pillows
- Chairs and sofas
- Bathroom fixtures/structures
- Exercise equipment
- Bicycles and related accessories
- Sporting goods
Customers aren’t the only people who could get hurt in your store. Even if your employees are highly professional and take great caution while doing their jobs, you need insurance coverage that will protect them (and your business) in the event of a worst-case scenario.
If you have an advertising strategy, your business may be at risk of lawsuits related to advertising injuries. Libel (written defamation), slander (spoken defamation), privacy rights violations, and copyright infringement all fall into the category of advertising injuries. Your insurance coverage should protect your business from legal action related to these issues.
Any business that owns or rents a storefront has a certain risk of dealing with property losses. Perhaps the most obvious cause of property losses are disasters like fire and flooding.
Even so, these aren’t the only types of property loss you’ll need to watch out for. This risk category also includes vandalism, theft, and most other forms of damage to your storefront, equipment, or inventory.
Today, e-commerce is more popular than ever—and even small brick-and-mortar stores are entering the field. But whenever businesses operate online, the threat of cybercrime exists.
While it might be tempting to assume your business isn’t large enough to be a potential target of cybercrime, that’s not truly the case. If you store any form of data about your customers, you need to know what to do in the event of a data breach.
What insurance do they need?
With these risks in mind, it’s not hard to see how thorough insurance coverage can help anything from the smallest clothing store to the largest online retailer. The next step is understanding the specific policies that can help you mitigate these risks. Some of the policies your retail store might need include:
General liability insurance
No business should go without a general liability insurance policy, and your store is no exception. These policies can provide protection related to:
- Customer injuries. When a customer gets injured in your store, general liability insurance will help you afford the associated medical bills and legal fees.
- Customer property damage. Even the most careful workers can accidentally damage customer property. This type of insurance will cover the costs of repairing/replacing a customer’s items, along with any legal expenses you end up dealing with.
- Damage from products you sell. General liability insurance policies for retail businesses often come with product liability insurance. This insurance can help your business take care of medical expenses and legal costs if a product you sell hurts a customer.
- Advertising injuries. If you’ve been accused of defamation or copyright infringement, general liability insurance will make it easier for you to pay for any related lawsuits.
Commercial property insurance
Taking responsibility for any physical space comes with risks. Your storefront could get damaged by fire or flooded by a burst pipe, thieves could steal from your inventory, or your equipment could get lost. Fortunately, commercial property insurance is designed to help businesses deal with these dangers.
Most businesses renting a commercial space are required by their landlords to carry commercial property insurance. But even if you aren’t technically required to have this coverage, it plays an essential role in protecting your storefront and other physical assets.
Worker’s compensation insurance
No retail business can function without employees to handle transactions, interact with customers, and keep things up and running. Still, your employees are inherently susceptible to injuries on the job. In the event of a workplace injury, worker’s comp insurance will cover lost wages, immediate and ongoing medical costs, and more.
While the requirements surrounding worker’s compensation insurance vary from one state to the next, most businesses in most states are required to have this type of coverage. That said, even sole proprietors and independent contractors can benefit from getting worker’s comp. If you’re self-employed, these policies can cover job-related claims that your health insurance might not touch.
Commercial umbrella insurance
Each insurance policy your store has will come with some sort of policy limit. While you might not be at risk of reaching these limits under normal circumstances, that probably won’t be the case when you’re dealing with a costly lawsuit. In situations like these, you may very well need extra insurance funds—and commercial umbrella insurance can help.
Commercial umbrella insurance provides a financial “boost” to your general liability, commercial auto, and employer’s liability insurance (the latter policy being part of your worker’s compensation insurance). If your expenses related to these risks exceed your coverage, an umbrella insurance policy will help you take care of these costs.
Cyber liability insurance
Of course, any business involved in e-commerce should have insurance to help them deal with possible cyberattacks. But even if you don’t maintain an online storefront, there’s a good chance that getting cyber liability insurance is in your best interest. If your store accepts credit card payments from customers and holds on to that information, you could also be the target of a data breach.
There are two basic forms of cyber liability insurance: first-party and third-party cyber liability insurance. Most retailers getting this type of insurance should focus on the former option. With first-party cyber liability insurance, your store will receive financial help when you need to:
- Let customers know you have been affected by a data breach
- Offer credit monitoring services
- Run PR campaigns related to your data breach
- Deal with interruptions to your business due to cybercrime
- Make cyberextortion payments
- Engage in other activities related to data breach recovery
Commercial auto insurance
Does your store have even a single business-owned vehicle? If it does, you need commercial auto insurance—this is typically a requirement for cars owned by companies. With commercial auto insurance, you’ll get protection for expenses related to property damage, lawsuits, and other costs associated with an accident involving your business-owned vehicle. And if this vehicle is vandalized or stolen, commercial auto insurance can help with that, too.
Depending on what your business does, you might use your vehicle more or less often than average. Because of that, you can adjust commercial auto insurance policies to meet your company’s needs. If you only make deliveries once a week, you can safely get less coverage than businesses that make deliveries every day.
Liquor liability insurance
Obviously, not every store sells alcohol—and if yours doesn’t, you won’t need to think about liquor liability insurance. But if you run a liquor store, a grocery store, or any other business that sells alcohol, this form of insurance is indispensable. (In fact, most states require all companies that serve or sell alcohol to have this form of insurance in place.)
As you might expect, liquor liability insurance can protect you from lawsuits related to accidental injury, on-the-job drinking, property damage, and assault and battery where alcohol is a factor. Along with that, this policy could assist you if you violate dram shop laws—laws that hold businesses accountable for selling alcohol to minors or people who are visibly intoxicated.
Business owner’s policy
Surprisingly enough, you might not have to individually purchase all of the policies listed above—not if your store is eligible for a business owner’s policy (BOP), that is. This form of insurance acts as a “bundle” including general liability insurance, commercial property insurance, and other insurance policies. Better yet, getting a BOP can be cheaper than buying each of these policies separately.
However, not all retail businesses are eligible for BOPs. These policies are typically used by small retail stores with low amounts of risk, such as clothing boutiques, online retailers with minimal employees, and thrift stores.
Considering how many retail stores are currently operating in the United States and the industry’s continued growth, it’s safe to say that retail is here to stay. But while the retail industry as a whole appears to be secure, individual retailers face numerous risks on a daily basis.
While you can’t eliminate these risks, you can take steps to minimize the financial impact they could have on your business. By purchasing general liability insurance, commercial property insurance, worker’s compensation insurance, and the other policies listed in this article, you’ll be ready to deal with employee injuries, natural disasters, customer lawsuits, and many other dangers. As a result, you won’t have to worry about anything other than running your store as effectively as possible.
Get in touch with your risk advisor and insurance agent today to learn more about costs, coverage, and our process to get quotes.