IKEA established a footprint in Israel in 2001, when it opened the first store in a central location in the city of Natanya, a 15 minute drive from Tel Aviv. A second store was opened in 2009 and the combined revenues for 2010 were approximately $190M. The enormous fire took down IKEA’s flagship store and the attached headquarters located in Natanya. The fire started from an electric fault on the roof and quickly spread to the entire store.
The store accounted for approximately 75% of the company’s revenues, $145M. IKEA’s executives estimated it will take them not less than six months to restore the building and probably longer to reopen its door to customers.
A very high impact risk such as total loss to fire is commonly transferred to a third party, by insurance products. In this case we can point out four important insurance types:
- Structure and infrastructure insurance – this product provides protection to the facility and its infrastructure. Here, the burned IKEA store and headquarter are considered total loss and have to be rebuilt.
- Inventory, Equipment and contents insurance – a different type of insurance provides protection to the equipment in use to operate the business and to the inventory stored in the premises. For IKEA that means millions of dollars worth of equipment in use and inventory, since its stores are their warehouse as well.
- Income loss insurance (or business interruption) – Covers potential future income lose from inability to run the business in case of a disaster. It is estimated that it will take IKEA between 6 to 12 months to rebuild and operate the store.
- Third party liability insurance – provides protection to customers and staff. Luckily, there were no injuries and casualties in this event.
Other related issues to consider:
- system back up – in the event of fire you want to make sure the company’s system, information and data can be easily restored.
- Alternate facility – in this case, the headquarters needs a space to run its operation.
- Competitive aspects – for competitors it is an opportunity to increase market share, while the restoration efforts take place.