By and  on August 31, 2005

NEW YORK — Major retailers said Tuesday that most of their stores in the path of Hurricane Katrina remained inaccessible, making it difficult to determine the impact on business from one of the worst storms in history.

Retail executives said their main concern at this point was the welfare of their employees, many of whom remained out of communication because phone lines and cell phone towers are down.

Nonetheless, Wall Street had an initially negative reaction to Katrina's destruction, perhaps because of concerns over the impact it will have on gasoline prices and thus consumer spending. The S&P Retail Index fell 1.7 percent on Tuesday to 447.63, while the broader S&P 500 dropped 0.3 percent to 1,208.41. The Dow Jones Industrial Average fell 0.5 percent to 10,412.82.

Katrina left at least 55 people dead, more than a million people without power and caused severe flooding in four U.S. states — Louisiana, Mississippi, Alabama and Florida.

Estimates of the overall damage continued to escalate Tuesday, with at least one risk-assessment company — AIR Worldwide Corp. — saying the insurance industry faces between $12 billion and $26 billion in insured losses due to the hurricane, making it one of the two worst natural catastrophes in U.S. history. By comparison, insured losses from Hurricane Andrew in 1992 — the worst disaster on record — were $15.5 billion then, or the equivalent of $25 billion in current dollars, according to AIR. Earlier estimates had placed Katrina's losses at $9 billion.

The hurricane swept through a swath of the country where retailers don't have their largest concentrations of stores, though some chains catering to lower-income and rural customers, such as Wal-Mart and Big Lots, reported scores of stores were down.

Wal-Mart spokeswoman Sharon Weber said 70 stores remained closed Tuesday afternoon, but that earlier in the day 123 were closed. "Typically, when people get back [home] they do have to go shop. It's important to us to get our stores open. People rely on us for diapers, [baby] formula and all that."

Of the Wal-Marts still closed, most are without power. However, "We had recovery-assessment teams staged prior to the storm and they have been to quite a few locations with pretty good news," the spokeswoman explained. "They still can't get into some areas and have not been able to assess damage in New Orleans and along the coast."Asked about the hurricane's financial impact, Weber wouldn't specify but said there would be some, considering the number of units that were closed at one time or another during the hurricane, in the Florida Panhandle, Alabama, Louisiana and Tennessee. She had no figures on precisely how much in revenue was lost. But reflecting Wall Street's concern over rising energy costs, shares of Wal-Mart fell 1 percent from the prior close to $45.19. In intraday trading, the stock dropped to $44.75. The last time shares of Wal-Mart fell below $45 was in July of 2002.

Wal-Mart has been involved in cleanup efforts. The Federal Emergency Management Agency is staging in the parking lot of a Sam's Club in Louisiana. The company has made a $1 million donation to the Salvation Army and a $1 million gift to the American Red Cross.

"Yesterday, we had 20 Gulf area stores closed and bracing for Katrina's arrival," said a Dillard's spokeswoman on Tuesday. "Today, 12 are still closed. We are still receiving reports from our people in the severely affected areas regarding store damage. We have not heard from all stores at this time, as some areas are still inaccessible."

Federated Department Stores only had two Macy's stores in New Orleans down, though they were hit hard. There were also some interruptions to business at some Federated stores in Florida last week due to electric outages and some minor damages.

In New Orleans, "We haven't been able to get near the stores yet and it looks like this is going to be a fairly long process of recovery," said Jim Slewzuski, spokesman for Federated, on Tuesday. "There is significant flood damage, no electricity and cell phone towers are down. Our first concern is to locate our employees and see what they need."

As far as getting a bounceback in business, he noted, "Sales typically get made up, but that's not our first concern."

Madison Marquette, a Washington, D.C., real estate company that manages The Shops at Canal Place in New Orleans' French Quarter, also is having trouble getting information. The mall houses such stores as Saks Fifth Avenue, Gucci and Brooks Bros."Just like most others, we have very limited access and limited ability to be in contact with anyone down there," said Joan Suko, Madison Marquette's vice president of marketing. "It's hard to get hold of the team. Most were evacuated so they're not right there, and the authorities are not allowing people into the area because of general issues. We are doing the homework and getting people ready to go and mobilize. At this point, we are trying to gather from the authorities when we might be able to get in there. I don't know that anybody is making a guesstimate as to when they will let anybody in."

With about 40 stores and two outlets in the South, Dallas-based Harolds' units in Jackson, Miss., and Baton Rouge, La., were closed on Sunday and remained shuttered on Tuesday. "The Jackson store is still closed and power is out," a spokeswoman said. "We will try to open the Baton Rouge store later today. Mainly the problem is loss of power." There was no physical damage to either store, she said.

"I'm sure the losses to our business will be significant because we're in the middle of huge markdowns," she added. "It's not going to be a good thing for us because the stores will have been closed for several days."

Scott Krugman, spokesman for the National Retail Federation, said, "Outside of increasing gas prices, we don't anticipate this having an impact on retail sales."

He believes retailers, similar to their efforts right after Sept. 11, are focusing on helping communities recover from the disaster, more so than recouping business losses. "The first response from the retail industry is support for community."

Kent Larsson, senior vice president of marketing at Big Lots, which closed 30 stores in the affected areas, said employees are still trying to reach the stores, which are in evacuated or hard to reach areas.

"All of our people are accounted for," he said. "Our first concern right now has been our associates and making sure that everyone is OK. Then we'll get to our stores. Once we open up we'll work with local communities as needed. We've learned from the past that the first things the community needs are basics such as toothpaste and shampoo. I understood water is not an issue. In a little bit, we'll get into cleaning materials, mops and brooms and later comes the need for towels and basic clothing, then mattresses, beds and furniture."Larsson said some of the items will be donated by Big Lots and some will be supplied by the company's vendors.

"It's hard to say what our losses are," he said. "It may be that just the area is flooded. We're trying to scope out the situation."

Amid all the difficulties, there could be a silver lining for businesses.

"In the third and fourth quarters and perhaps first quarter next year, I predict a major spending increase in the affected areas, primarily at stores like Home Depot and Lowe's, for cars, home furnishings and even for apparel," said Isaac Lagnado, president of Tactical.org., a consulting firm.

Lagnado said there could be a "big replacement boom," which is what happened in Florida after last year's barrage of hurricanes. "It ends up being a net positive for the economy, believe it or not."

According to a Merrill Lynch research report, there will be "muted" impact on specialty retailers' sales results for August and September, considering the states hit by the hurricane and compared to last year's barrage of hurricanes. "Total impact on businesses individually seems minimal, with exposure under 3 percent of total store bases for the specialty chains covered," Merrill stated.

While this summer has seen more tropical storms — 11 — than in recent years, the report said that, in retail terms, "Thus far, the 2005 hurricane season has been relatively small when compared to 2004. In 2004, four hurricanes — Charley, Frances, Ivan and Jeanne — slammed into the Florida coast from August to September, significantly affecting sales of both Ross Stores and Chico's, which had to close 60 to 65 stores during the Labor Day weekend. Both Ross Stores and Chico's are the only retailers in our universe that have about 11 percent of their total store base in Florida."

Merrill also noted that Louisiana and Mississippi do not come close to Florida in terms of population.

Hurricane Katrina is also not expected to have a major impact on the hardline retailers. "Instead, if the hurricane contributes to even higher gas prices, the effect is likely to be broad-based as consumers look to trim spending further. We do not anticipate a wholesale retrenchment, but we could see more trading down and less discretionary expenditures."Merrill added that Home Depot and Lowe's typically benefit from hurricanes when homeowners prepare for the storm and rebuild afterward, especially once insurance money arrives.

Equity analyst Deborah Weinswig of Citigroup Smith Barney maintained August same-store sales expectations, despite Katrina. However, she said in a report, "We do believe that September same-store sales could be somewhat dampened as customer traffic is negatively impacted in the South."

Discounters, dollar stores and clubs should benefit from consumers stocking up to prepare for the hurricane, she said, adding, "Typically, these retailers experience a lift in demand for consumables and survival items as consumers prepare themselves after severe weather alerts."

She also said that high-end retailers, such as Neiman Marcus and Saks Fifth Avenue, could experience "a better comeback" in sales because the luxury shopper is likely to return to the stores due to notable pent-up demand, while more moderate department stores such as J.C. Penney and Federated Department Stores could be susceptible to sales weakness from the hurricane.

President Bush, who has declared major disaster areas in Louisiana, Alabama, Mississippi and Florida, making them eligible for federal assistance, will cut his vacation short and return to Washington today to monitor assistance efforts for victims of the hurricane. Bush was slated to return to Washington on Friday.

Limited Exposure to Hurricane Katrina
Number of Stores
 
Alabama
Florida
Louisiana
Mississippi
Subtotal
[La. and Miss.]
Total Stores
% of Total
American Eagle
15
42
13
6
19
777
2.4
Abercrombie & Fitch
13
35
14
5
19
700
2.7
Aéropostale
14
29
7
2
9
561
1.6
Chico's
9
76
11
2
13
672
1.9
Gap Inc.
37
163
39
20
59
2,603
2.3
Limited Brands
58
239
67
32
99
3,666
2.7
Children's Place
12
68
12
4
16
989
1.6
Pac Sun
13
76
14
3
17
990
1.7
Ross Stores
7
74
8
1
9
649
1.4
TJX
21
123
16
7
23
1,846
1.2
Talbots
10
32
10
3
13
1,040
1.3
Tiffany
0
7
0
0
0
55
0
Source: Merrill Lynch
— With contributions from Arthur Zaczkiewicz, New York, Kristi Ellis, Washington, and Holly Haber, Dallas

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