Retailers in the forefront of hurricane preparedness
While much is made of the benefits and costs to retailers during major weather events, their focus is on safety.
As Hurricane Florence made landfall on North Carolina's coast early Friday morning, the storm was downgraded again to a category one, but wind remained high at 100 mile-per-hour gusts and a deluge of rain — over a foot in some places — was wreaking destruction.
Winds and floods along both Carolina coasts will continue all day, imperiling human lives and property. Retailers have had a role in helping people prepare and will aid in the aftermath. Many themselves run stores in the hurricane's path, so their employees and properties are also in danger.
Hurricane Florence could cost retailers some $700 million, according to Planalytics, which provides weather-related planning tools for businesses. While much is made of the costs and benefits to retailers in light of hurricane effects, the reality is that neither really makes much of an impact to retailers' bottom lines. The focus is really on safety, for customers and store staff, according to Paul Walsh, global director consumer weather strategy for IBM Services.
"These guys have probably spent 10 days preparing, getting supply chains running and moving heaven and earth, basically, to make sure that they're ready to meet that demand and make sure they keep their associates safe," he told Retail Dive in an interview.
Based on pre- and post-hurricane sales, some retailers are seen as beneficiaries or victims of major weather events. Home centers, mass merchants, gas stations and convenience stores can see an uptick in sales during inclement weather events, while restaurants, entertainment venues like movie theaters, malls and specialty apparel stores generally take a financial hit, according to an email from Planalytics to Retail Dive.
While mass merchants stock essentials like flashlights and batteries and home improvement retailers stock plywood and other goods to help people batten down the hatches, there are extra costs in expanding that inventory that likely outweigh the sales benefit, according to Walsh. "Obviously there's a big forecast factor, this big surge of sales," he said. "What ends up happening is that it's all hands on deck to fulfill that demand. But it's not a big boon for them I don't believe."
Hurricanes tend to depress sales in the short term, boost sales in the medium term and spur growth as people turn to repairs in the longer term, according to a report last year from J.P. Morgan's Global Research Unit. But overall "the economic and market impact is relatively muted," that research found.
Looking at year-over-year comparisons, the kind of repair sales that showed up in earnings reports by the likes of Lowe's and Home Depot from Hurricanes Irma and Harvey last year aren't likely to be replicated by less severe Florence. But those sales didn't make or break those retailers' years in any case, Walsh noted. More likely, being there with supplies helps lock in loyalty, by showing customers that they're there for them with the supplies they need, he said.
"Last year was particularly notable because of the scale of the events and the number of people impacted. No doubt it drove a lot of incremental traffic — but there's a lot of cost to make sure they can fulfill that demand. It's not like manna from heaven," he said. "To the extent there's a benefit, [the attitude is] more 'god willing we won't get another hurricane.'"
Rethinking the weather
Some retail sales are given a boost not by the reality of what's happening on the ground, but by the psychological impact of social media, Walsh also said. People access up-to-the-minute weather updates on their phones, and Twitter and Facebook fuel panic and concern. And that also affects stock traders.
"It's not just the big impacts of the storms — because of the mobile phone, that is increasing," he said. "Weather forecasts fueled by social media — that just has a massive impact on consumers."
Shares of home improvement retailers rose Thursday as Florence headed to the Carolina coast, but that, too, is something of an emotional response. "What happens with Wall Street is they react to the weather reports like everybody else," Walsh said. "The same thing happens if its a warm winter in the Northeast — something happens psychologically and they extrapolate to sales. Home Depot and Lowe's are going to sell all kinds of plywood and generators, just that the whole benefit to the entire business is not necessarily going to drive 100 extra basis points to their comp."
Much more important is that retailers have become more sophisticated about weather preparedness in general, not only to meet demand of certain assortments but also to keep people safe by closing stores. "More and more view understanding weather events as critical and fundamental to prepare for, and to guard against the weather's volatility. The fact that IBM has bought The Weather Company alone is a sign of that," Walsh said. "CEOs are rethinking weather, evaluating what do people want and need — at the IBM scale, so everywhere in the world."
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