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Retailers escaped serious property damage from Hurricane Sandy, but many in the mid-Atlantic and Northeast remained operationally paralyzed Tuesday due to power outages and transportation shutdowns that could go on for days, if not into next week.
This story first appeared in the October 31, 2012 issue of WWD. Subscribe Today.
Executives expressed relief that employees were safe, but said it would only be after all stores returned to normal hours that they could make reasonable assessments on business losses. While expecting the toll to be huge, they said it would have been worse had the situation occurred closer to a weekend or closer to Thanksgiving. But consumers could alter their holiday spending budgets, with more immediate needs suddenly arising from the storm.
The New York fashion industry remained at a standstill Tuesday, with almost all stores and offices closed throughout Manhattan. Streets were bustling later in the afternoon, however, as pent-up tourists wandered Midtown searching for stores that might be open. Companies said they were assessing risks although most expected to reopen today in some form.
Eqecat, an insurance consultancy that specializes in catastrophic events, estimated Sandy could cause $10 billion to $20 billion in economic damages, with $5 billion to $10 billion in insured losses. Other experts have estimated that just the shutdown of the New York subway system could cause $4 billion in economic losses a day. Factoring in the closure of East Coast oil refineries, which could drive gas prices higher, and other interruptions to business, total economic losses could tally $30 billion to $50 billion, according to IHS Global Insight U.S. economists Gregory Daco and Nigel Gault.
“The commercial shutdown of the East Coast is likely to result in gross domestic product losses that may outweigh infrastructure damages,” said Daco and Gault in their analysis.
“Quite a number of factors make Sandy’s punch more potent than Hurricane Irene’s,” which occurred last year, said Sohini Chowdhury, economist at Moody’s Analytics. “Sandy has caused more severe business interruption than Irene because it made landfall on a weekday, and was slower moving. Businesses from New York City to Washington, D.C., have been shuttered for at least two days now, power outages are rampant, and all forms of transportation have come to a grinding halt.”
The densely packed region between Washington and New York, which also includes Wilmington, Del., and Philadelphia, accounts for about $10 billion of the nation’s gross domestic product daily, Chowdhury said.
According to Planalytics, the firm that helps retailers plan their business based on weather patterns, initial estimates are that damages from Sandy will top $20 billion, and this will likely rise as the storm is still active and enveloping large population centers. If estimates hold, Sandy will rank in the “top 10” of most costly storms, more expensive than Hurricane Irene in 2011, which had estimated damages of $15 billion.
Sandy’s cost will be so significant because it stretched over 900 miles, impacted about a third of the U.S. population and lasted longer than most storms. Sandy triggered an estimated eight million power outages so far in the U.S., with New Jersey and New York City having the most, and with outages reported as far west as Cleveland. For New York City, this was its largest-ever weather-related power outage.
As of Tuesday afternoon, an estimated 7.5 million people in the Tristate area remained without power.
New York stock and bond markets remained closed, which is an extremely rare occurrence on Wall Street, the last time being after the terrorist attacks on Sept. 11, 2001. The markets are expected to reopen today. The trading sessions, when the markets do reopen, possibly might be in for some rough sailing. After the markets shut down for Hurricane Gloria in 1985, the S&P 500 dropped 5.5 percent during the week after they reopened. The drop was 116 percent following the 9/11 terrorist attacks. But following the more recent Hurricane Irene in August 2011, stocks rose 3.5 percent when trading resumed.
Mark Montagna, senior analyst at Avondale Partners covering value retail, said, “The greatest impact of Hurricane Sandy is on our specialty apparel retailers since they own their own inventory. This group is likely to face lost sales and will resort to markdowns, if necessary, to keep inventory on plan heading into Thanksgiving week.”
President Obama is due to visit storm-stricken regions of New Jersey today and meet with Gov. Chris Christie. Moody’s Analytics economist John Lonski said Tuesday the aggregate measures of financial market risk aren’t aiding President Obama’s reelection bid. Lonski said, “When the incumbent President last won reelection in November 2004 and November 1996, aggregate measures of actual and perceived financial market risk were significantly under their recent readings. Accordingly, the risk aggregates are not supplying lift to the current incumbent’s reelection prospects.”
The current high-yield bond default rate is 3.8 percent and the VIX index, a measure of risk, is at a relative high of 17.8.
In 2004, the last time an incumbent president ran for reelection, the October 2004 data showed “considerably lower levels of actual and perceived risk in the corporate credit and equity markets,” Lonski said.
In 2004, the high-yield bond default rate was 2.9 percent and the VIX was at 15. The economist said when President Clinton successfully ran for reelection, the October 1996 high-yield bond spread was even lower. The high-yield bond default rate in 1996 was a low 1.9 percent and the VIX index was at a fairly stable 16.4.
The last time an incumbent president bid for reelection and failed was in November 1992. Then, George H.W. Bush was president, the high-yield default rate was 6.2 percent and the VIX was at a high of 17.6, on par with its recent reading of 17.8.
Also, Sandy produced more than 15,000 flight cancellations so far, compared with Hurricane Irene, which resulted in roughly 10,000 flight cancellations. Ten states declared a state of emergency, with parts of New York and New Jersey already being declared federal disaster areas. Also, locations in western Maryland, West Virginia, Virginia and Tennessee reported up to 2 feet of heavy wet snow.
Planalytics said some consumer activity shifted due to Sandy, with certain purchasing being moved forward, and that virtually all major retailers had at least 10 percent of their store base in the path of Sandy. “Leading up to the storm, home centers, mass merchants and grocery stores experienced a surge in traffic as consumers were purchasing ‘must-have’ items. Additionally, quick-service restaurants, gas stations and ATMs experienced strong traffic, particularly in and around communities where evacuations occurred. Significant media coverage during the weekend leading up to Sandy’s arrival ensured consumers had ample opportunity to stock up and prepare.”
With power outages south of 42nd Street in Manhattan, public transportation shut down and many roads and bridges closed for traffic, most major Manhattan department store flagships, among many other stores, never opened Tuesday. At Saks Fifth Avenue, Stephen I. Sadove, chairman and chief executive officer, reported Tuesday midday that “most of our stores that we had to close are reopening this afternoon. Across the company, everybody is healthy, but people obviously have some property damage.”
The Fifth Avenue flagship, which Sadove said did not sustain any damage, remains closed indefinitely due to New York’s transportation issues. “It’s just a question of when we can get employees there. I don’t know the answer to that.”
Barneys New York opened at 1 p.m. Tuesday. A spokeswoman said “the safety of the employees was of the utmost important so only those able to arrive safely to the store were asked to do on a voluntary basis.” And so the Madison Avenue flagship was staffed mostly with corporate executives including chief executive officer Mark Lee and chief operating officer Daniella Vitale.
Shoppers included Nicholas Ghesquiere and Alexander Wang.
Bloomingdale’s chairman and ceo Michael Gould said the 59th Street would open on Wednesday. Regarding the other six stores that were closed, Gould said it depends on whether power gets restored at those locations. “The safety or our employees and customers comes first, but we are planning to open,” he told WWD. With buses expected to be running, other stores might reopen, too.
The Neiman Marcus Group kept Bergdorf Goodman on Fifth Avenue and Neiman Marcus stores in Short Hills and Paramus, N.J. and White Plains, N.Y. closed. Also, nine Last Call outlets were kept closed. However, two Neiman’s stores in the Washington, D.C., area were reopened. Bergdorf Goodman also will reopen Wednesday.
“The storm had a huge impact on our 50-plus doors up and down the East Coast,” said Steve Birkhold, ceo of Devanlay US, the Lacoste licensee. Over “the last two days, we have had around 30 doors closed at any given time. No major damage to report so far. Our primary concern is for the safety of our thousands of employees. In Manhattan all stores were closed Monday and today [Tuesday]. Our corporate office also remains closed pending when our employees can safely commute. All in all we survived this huge event in good shape and will reopen when it makes sense.”
Tiffany & Co. closed most of its doors between Washington, D.C., and Boston on Monday, including its three stores in New York City. The Manhattan stores and those in areas of New Jersey, New York and Connecticut remained closed Tuesday. All others opened, although some with delayed openings.
Coach closed about 80 of its stores in the Northeast on Monday and most of those remained closed Tuesday. It was deciding late Tuesday afternoon which stores to reopen and when to reopen its 34th Street headquarters in New York, which continued to have power, a spokesman said.
Neal Black, ceo of Jos. A. Bank Clothiers Inc., said the company closed 114 stores in the storm’s path between Washington, D.C., and Providence, with most of the closures in New Jersey. The headquarters and distribution center in Hampstead, Md., closed at 2 p.m. Monday but reopened at 11 a.m. Tuesday. “We had no injuries and only minor water damage in a few stores,” he said. “We expect to be back in full operation by Tuesday afternoon, Wednesday morning at the latest.” Brooks Brothers’ New York stores and its corporate office remained closed Tuesday and a Scotland-themed event scheduled for Tuesday night was canceled.
Outside the city, “Certainly, a fair chunk of stores will be affected for a few more days, but I haven’t heard of any serious damage to the stores and lots of our stores were unaffected,” said Brendan Hoffman, president and ceo of the York, Pa.-based The Bon-Ton Stores Inc. Also, none of Bon-Ton’s “flagships” were in the path of the storm, Hoffman said.
“The economic impact is going to be devastating,” said Steve Siegler, ceo of J. McLaughlin. “Fortunately, none of our stores are damaged. On Monday, we ended up closing 32 stores from Washington up to Boston, and today we have 11 closed out of our 63 stores. Everybody did a terrific job of getting to the stores. I am proud of the way people pulled together, but there was very little business yesterday. This can have a long-term effect on how people spend their time. They may be focused on repairing their homes. A lot depends on what happens with transportation and schools. Until things get back to normal, shopping may not be the highest priority in the near term.”
Siegler said even with all the ominous reports of the storm approaching, “We did fine over the weekend.” He also said the company had strong results from a Sandy special online sale. Siegler agreed with others that this isn’t a critical selling period. “In the first few weeks in November, normally there is a lull before Thanksgiving.”
The Talbots Inc. on Monday pushed a 30 percent one-day-only sale online. That discount was extended on Tuesday. Lord & Taylor also on Tuesday offered a one-day-only sale for online purchases, with 25 percent off. And Kohl’s Corp. began offering more items at its Web site at discount prices.
Dennis Basso’s store remained closed Tuesday, and the designer was stranded in Pennsylvania after making a trip to QVC for an appearance. “We sold a lot because everyone was home watching TV,” he said. He planned to try again today to return to New York and reopen his store and offices.
Nicole Miller plans to reopen its two Manhattan stores today and its Tysons Galleria store in Virginia opened on Tuesday afternoon.
A Target Corp. spokeswoman said, “We will reopen stores when it is determined safe to do so and transportation restrictions are lifted. Our goal is to reopen and replenish our stores as quickly as possible to ensure our guests have access to essential items.”
Target reopened more than 140 stores across the East Coast, but had nearly 60 stores still closed Tuesday. Target said it monitors road conditions and works with its distribution centers and vendors to ship products to stores that are open.
Wal-Mart Stores Inc. said at one time during the storm, it had closed 294 stores, warehouse clubs and distribution centers. By Tuesday morning, 169 stores remained closed from as far south as West Virginia north to New Hampshire.
Across the same area, about 80 Sears stores remained closed early Tuesday afternoon, from a high of 187 on Monday. Three stores were expected to reopen Tuesday. “The biggest impacted area is in the New York-New Jersey markets where power outages and safe accessibility to stores for our associates is hampering our efforts to reopen,” said a spokesman. “So far we have more than a dozen associates whose homes have been damaged by Sandy and our h.r. departments are working to provide support for them,” the spokesman said.
The two most severely damaged stores were in Rosedale, N.Y., with 4 feet of water inside, and in Brockton, Mass. which suffered roof damage.
Taubman Centers Inc. said The Mall at Short Hills New Jersey, Stamford Town Center in Connecticut and West Farms Mall in West Hartford, Conn. were all closed on Monday. The Fairfax Mall in Fairfax, Va., and the MacArthur Center in Norfolk, Va., which had water damage to elevators, opened Monday morning but then closed around midday. “We’re thankful the damage wasn’t as bad as expected, but it was bad enough,” said a Taubman spokeswoman. In terms of revenue losses, “The end of October is not traditionally a busy time. It depends on how long the stores stay closed.”
“Our centers really suffered little damage,” said a spokesman for Simon Property Group, where as of Tuesday, 12 regional and six premium outlet malls remain closed, including King of Prussia Mall in King of Prussia, Pa.; Rockaway Town Square in Rockaway, N.J., and Potomac Mills in Woodridge, Va. Menlo Park Mall in Menlo Park, N.J., lost power, Ocean County Mall in Toms River, N.J., and Newport Center in Jersey City, N.J., remain shuttered. All are in hard-hit areas of the Garden State.
At the Charlotte, N.C.-based Belk Inc., “All of our stores are open with the exception of Beckley, W.V., due to snow. We had a few with minor roof leaks, nothing major at all. We are very lucky,” said Jessica M. Graham, vice president of communications and community relations. “Yesterday [Monday] we had quite a few stores closed early, a lot of it had to do with precautions cities were taking, like closing bridges. Today, everything appears to be back to normal, relatively speaking,” though she noted merchandise shipments will be affected.
As of 3 p.m. Monday, 43 Walgreens and Duane Reade stores closed in New York-New Jersey, as well as 200 Walgreens stores in Washington, D.C.; Delaware; Maryland; Pennsylvania, and Virginia. Walgreens said it would put a priority on trying to keep its 24-hour stores opened. Walgreens is using different vehicles to keep employees informed including conference calls, individual calls and its 24-hour security operations center.