What Small Businesses Can Learn from ASOS Factory Fire

"Fashion website ASOS remains closed after warehouse is devastated in arson attack," read recent headlines in the Daily Mail and countless other news sources.

Reports stated that all ordering had been suspended after a suspected arson attack at the main warehouse that required more than 50 firefighters (and the evacuation of 500 workers) after the fire spread to four floors at the giant distributions center that holds 70% of the company's $270 million in inventory.

The online clothing retailer is now taking orders again, but says that about 20% of its stock was damaged in the attack. The fire and its aftermath also damaged the business's reputation and required a pause in the company's order taking and fulfillment, probable storage and relocation for its remaining stock, and property damage, among other costly impacts.

So what can small businesses learn from events like the arson attack on fashion giant ASOS?

The Asos fire raised fears that the company could be out of operation for a long time. Combined with the loss to property and stock that a company incurs when a disaster happens, a pause in business operations can be crippling to a company's revenue. Acts of Mother Nature, criminal mischief, or other accidents could find you and your business in a similar boat. Power failure from a storm, flooding, fire, hail, wind, vandalism, and equipment damage are just a few of the instances in which business interruption insurance could save your business from damaging losses.

Business interruption insurance can keep capital coming into your company in the event of such disruptions. It covers the loss of income that a business suffers after a disaster while its facility is either closed or being rebuilt. While property insurance covers only physical damage to the business, a business interruption policy covers the profits that would have been earned, allowing a business to remain in the same financial position it would have been in if no loss had occurred. It can help you with:

•    Profits – Replaces profits that would have been earned, and can keep your business 
    afloat if a loss forces you to close temporarily

•    Fixed Costs – Covers operating expenses and continuing expenses incurred by the
    property while a location is temporarily closed, rebuilt, or relocated (such as mortgage,
    advertising, taxes, and salaries)

•    Temporary Location - Some policies cover the extra expenses for temporary relocation
    and advertising fees 

•    Extra Expenses - Reimbursement for reasonable expenses (beyond the fixed costs) that
    allow a business to continue operation during property repair

Asos is now offering discounts of up to 50% as it resumes taking orders, after the blaze forced the closure of its website for two days. They launched a massive summer sale, in an attempt to woo back customers that were affected by the fire and play damage control on its reputation. That’s two full days of lost revenue, combined with reduced revenue from sale merchandise, in addition to the many other areas of business affected by the fire. To no fault of its own, Asos and other companies who incur similar, unavoidable catastrophe have to account for losses in sales and revenue above and beyond the assets lost in the fire - which can be even more damaging to a company's bottom line.

For a larger company like Asos, while the losses are higher than for smaller business, their ability to bounce back is also higher. They have more working capital, credit, and insurance coverage to work with. An unexpected loss to a poorly insured small business can be crippling. 

Asos gave a statement that it is fully insured for loss of stock and business interruption, which will mitigate the impact the fire has on its business and revenue.

Many business owners don’t have business interruption insurance, even though the protection it affords is extremely valuable in cases like these - where the losses are unexpected and huge.

Cost may be a factor in why business owners pass on this coverage, with policies ranging from $750 and up, depending on business size. However, businesses may want to reconsider interruption coverage, based on statistics showing the increasing number of natural disasters. The total has increased from 400 major incidents to more than 600 in a typical year, according to a recent survey from global insurer Allianz.

Some insurance policies that help companies affected by catastrophic losses, are: 

•    Business Interruption

•    General Liability

•    Property

•    Umbrella Insurance

If you’re curious whether your business insurance coverage adequately protects you, or need to add business income to your coverage, please contact John Jacquat at 303.834.1001, or request a free quote or existing policy review on our website.