Industry risk report

Risk & Insurance, March, 2004

No two retail operations are exactly alike--nor are their risk exposures. But large retail operations do feel some of each other's pain, particularly in the area of workers' compensation, because most retain all of the risk. Massive jury awards and frivolous lawsuits are another sore point (see page 38). Here's what some of the country's top retail risk managers wake up to every morning.

Target Corp.

Minneapolis, Minnesota

Formerly Dayton Hudson, Target Corp. operates about 1,550 stores in three guises: Mervyn's, Marshall Field's and Target. The 1,200 Target discount stores are the heart of the company's operation, populated by hordes of consumers with a wealth of style--but not a wealth of cash. Offering more upscale, fashion-forward merchandise than rivals Wal-Mart and Kmart, Target stores and their extensions, including SuperTarget and Target Greatland, account for 84 percent of Target Corp.'s total revenues. Target Corp. also owns catalog retailer Rivertown Trading and apparel supplier Associated Merchandising.

Chief risk executive: Reesa Baker, Risk Finance Manager

CEO: Robert J. Ulrich

CFO: Douglas A. Scovanner

Board audit chairwoman: Michele J. Hooper

Total revenue: $43,917.0 million

Net income: $1,654.0 million

Number of employees: 306,000

Primary brokers: Marsh, Aon

Captive: No

Risk exposures: Cost increases in workers' compensation, public liability risks, Directors' and Officers' liability and the rising cost of providing D&O liability coverage, physical inventory risks, litigation costs, shrinkage, supply chain risk, consumer credit risk, employee benefits and pension plan risk

Key risk strategies: Target retains a portion of the risk related to certain general liability, workers' compensation, property loss and employee medical and dental claims. Target maintains stop-loss coverage to limit the exposure related to certain risks. The company uses swap agreements to address interest rate risk. In addition, the company maintains a large staff of claims and safety professionals, and has comprehensive programs in place to ensure the safety of its employees as well as its customers

Wal-Mart Inc.

Bentonville, Arkansas

The house that Sam built has become the world's number one retailer. Period. Diversification into grocery (Wal-Mart Supercenters and Neighborhood Markets), international operations and membership warehouse clubs (SAM'S Clubs) has created greater opportunities for growth. Some complain that Wal-Mart's introduction to a region signals a death knell for multitudes of small, independent businesses. But on the flip-side, Wal-Mart boasts that its phenomenal growth has been an engine for creating jobs in the communities it enters.

Chief risk executive: Rita Stephens, Director, Risk Management

CEO: H. Lee Scott Jr.

CFO: Thomas M. Schoewe

Board audit chairman: Roland A. Hernandez

Total revenue: $244,524.0 million

Net income: $8,039.0 million

Number of employees: 1,400,000

Primary broker: Marsh

Captive: No

Risk exposures: Reputational risk is the liability du jour for the Wal-Mart set. Dozens of cases claiming sex discrimination and wage violations have tarnished its image. Editorials deplore how low-paid Wal-Mart workers must sign up for welfare to make ends meet. Even Playboy magazine got in on the act, calling Wal-Mart's Arkansas headquarters the "epicenter of retailing's evil empire." This year, a lot is riding on two key cases that may either ease or exacerbate reports of worker mistreatment. A California judge is set to decide later this year whether a sex discrimination lawsuit should proceed as a class action covering 1.5 million current and former women employees. Meanwhile, an investigation into illegal workers at some Wal-Mart stores will be back in the spotlight when a Pennsylvania grand jury completes its deliberations shortly. The loss of either case would be a major blow to the retail behemoth.

Key risk strategies: It seems everybody's getting into the risk management act at Wal-Mart right now. According to a report from Reuter's (2/1/04), Was-Mart is in the middle of an aggressive public relations campaign to paint a picture of a kinder and friendlier employer. Once-reticent Wal-Mart execs have begun firing off letters to the editors of newspapers and magazines that publish unflattering articles, in the hopes of cleaning up the retailer's stained image. Whether or not the strategy works, only time will tell

Sears, Roebuck and Co.

Hoffman Estates, Illinois

In 1886, entrepreneur Richard Sears founded the R.W. Sears Watch Co. He soon enlisted the aid of young watchmaker Alvah C. Roebuck, and thus began an extraordinary partnership. Sears, Roebuck and Co., incorporated in 1893, is a leading retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion. The company serves families in the United States and Canada through Sears stores nationwide, through its catalogs and through its Web site.

Chief risk executive: Larry Raymond, VP and Treasurer (interim chief risk officer)

CEO: Alan J. Lacy