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Purchases protected: the top bonds in the retail sector

Purchases protected: the top bonds in the retail sector

Because of COVID-19, businesses across every industry have pivoted quickly to try to recover their losses and guard against future potential risks. Retail businesses are especially sensitive to seismic shifts in the economy as political factors, consumer trends, and technology are variables that can impact a retailer’s success.

Traditionally, consumers have preferred hands-on experiences such as test-driving vehicles at their local dealership, dining at their favorite restaurant or jumping into a fitting room at a boutique store, but the on-going pandemic has changed that. Although certain businesses have benefited from these changes to consumer behavior, others have struggled — grocers, home improvement stores and wholesaler retailers perform well, while apparel and department stores have wrestled with COVID-imposed restrictions, heavy debt burdens, and compressed margins. 

Reducing risk in retail

As a pivotal piece of the supply chain, a healthy retail sector is good business for everyone — from manufacturers and wholesalers to the end consumer. To help safeguard against risks to the retail space, surety bonds are a valuable way for businesses to build an extra layer of security for themselves. Here are a few of the more common bonds across four key retail sectors: automotive, food and beverage, general merchandise, and online. 

Automotive sector
The retail automotive sector is comprised of two types of companies: those that sell auto parts and those that sell new and used vehicles.

  • Motor vehicle dealer bonds
    These bonds guarantee that the motor vehicle dealer and/or manufacturer will comply with outlined protections for warranty promises, fraudulent practices and misrepresentation of the motor vehicles dealer.
  • Game of chance bonds
    If a dealership or auto parts company runs a promotion or sweepstakes, this type of bond guarantees that any prizes offered are awarded to the winner. It is required in some states, including Florida and New York.

Food and beverage sector
The food and beverage sector is comprised of grocers, restaurants, food packaging companies, liquor stores and fast-food companies.

  • Tax bonds
    Frequently required by local and federal law, food and beverage retail sellers must post bonds to guarantee they will collect and remit taxes for business activities. Common tax bonds include sales tax, use and consumer tax, alcohol, liquor, and tobacco.
  • Utility payment bonds
    Used as an alternative to a traditional cash deposit or Line of Credit (LOC), this bond guarantees timely bill repayment to the utility vendor.

General Merchandise
General merchandise is a catch-all term for items that include clothing, apparel, appliances, sporting goods, etc.

  • Lease bonds
    A financial guarantee that ensures payments of assessments under a rental agreement. A principal may post this type of bond in lieu of a cash deposit or traditional LOC, freeing up their capital for other uses.
  • Workers’ compensation on bonds
    Employers are required by all states to guarantee payment of statutory workers’ compensation benefits to their employees. Companies that elect to self-insure any portion of this risk must post security with the state using a cash deposit, letter of credit or a surety bond. Given their long-term nature, workers’ compensation bonds are typically reserved for very strong credits.
  • Customs bonds
    The primary purpose of a customs bond is to ensure payment of import duties and taxes, as well as complying with all regulations governing entry into the U.S. of merchandise from foreign sources.

Online retail
Otherwise known as e-commerce, online retail stores are virtual establishments that sell a variety of consumer or business-to-business products over the internet. 

  • Money transfer bonds
    Required by a business that provides money transfer services or payment instruments, money transmitter bonds guarantee that the principal will follow applicable state rules and regulations of the industry, safeguarding the end consumers well-being.
  • Collection agency bonds
    These bonds are required by some states to assure the principal will function according to state collection agency laws and in conformity with the standards issued by the Fair Credit Reporting Act. A business that extends credit card services may be required to post collection agency bonds.

The future of retail – what you need to know

As the impacts of COVID-19 continue, retailers may choose to prioritize investments in the e-commerce space as a strategic way to capture a share of the online marketplace, reduce costs and reconfigure supply chains to solidify their position.

Understanding the benefits of a surety program should be a top priority for a risk manager.  Surety bonds free up credit capacity for other uses, can result in cost savings and help protect businesses from financial loss. Surety companies have claim specialists and legal teams that handle disputes and assist with the claims process. This provides an additional layer of security as sureties investigate claims for proof of default, while letters of credit may be drawn upon at any time. 

Liberty Mutual Surety offers the financial strength, stability, innovation, and expertise to solve your bonding needs.  We work with businesses of all sizes to provide customized, flexible bond solutions with local experts and a global reach. For more details on bonding with Liberty Mutual Surety, please reach out to your local independent agent or broker.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.