LOS ANGELES — California is no stranger to dramatic weather events and power outages, but having the power go out before anything even happens is new — and potentially costly for retailers in the state.
Representatives of state offices, including the Office of Emergency Services and the Department of Finance, are not yet estimating the cost of the outages, forced by utility provider PG&E as a first-of-its-kind preemptive measure against potential fire hazards.
A spokesman for the Department of Finance said it’s simply too early for the government to start estimating the economic impact of the outages. The outages only started on Wednesday in several counties in Northern California — but already hundreds of thousands of people are without power, and potentially more than 1 million could be without power in the coming days.
“It’s still very fluid right now, so it’s not yet something the state is gathering [data] on,” the spokesman said of the economic impact. “For example, there are localities that were supposed to have power shut off that didn’t.”
But an online tool, the Interruption Cost Estimate Calculator, made by Berkeley Lab, is being used by some non-government economists to make an educated guess at what the financial impact could be for the state.
Michael Wara, director of the climate and energy policy program at Stanford University, wrote on Twitter that his calculation with the tool for the impact to households and small businesses could be as high as $2.5 billion, but as little as $65 million. He based the calculation on PG&E data and the expectation of 800,000 customers being without power for at least 48 hours. He excluded large businesses in his calculation, noting most of the areas so far affected by outages have been “suburban/rural” and also in or around “steep terrain” where there are few large businesses in operation.
“The lesson here is that the biggest economic losses involve business interruption and we just don’t know the details of how much of that will occur,” Wara wrote. “And the actual [public safety power shutoff] may affect more/less customers than this and be shorter/longer than 48 hours. Time will tell.”
Retailers such as Walmart, Macy’s and Forever21, as well as Levi’s, Gap and Nordstrom, could not be reached for comment on the outages. A spokeswoman for Target said there are two stores in Northern California operating on generators, one in Sausalito and one in Auburn, but both remain fully open and functional for shoppers.
“Since the California Public Utility Commission accepted a plan for Public Safety Power Shutoffs earlier this year, Target has been working closely with local utility companies to understand their plans and notification processes,” the spokeswoman said. “We’ve also prepared our team members, stores and distribution centers with back-up plans to ensure a positive shopping experience for our guests during the power shutoffs.
Still, experts in the retail industry are hesitating to put a dollar amount on the impact of the outages, citing questions about scope.
Jack Kleinhenz, chief economist for the National Retail Federation, admitted the outages put “many retailers in a difficult position” but that ultimately it should prove similar to the buying trends experienced with weather events like hurricanes and snowstorms. Buying will dip, but temporarily. And the bounceback for these preemptive outages will likely be much easier.
“Unlike hurricanes that cause substantial damage, companies will be better positioned in this situation to take steps to prevent serious damage from occurring,” Kleinhenz added.
Evan Gold, an executive vice president at Planalytics, noted that the outages in California are genuinely unprecedented, in that they’re an interruption before a weather event has actually occurred, something for which he could think of no real comparison.
“This is a very unique situation,” he said.
Given this, and the still missing piece of how long outages will last, Gold declined to put a dollar amount on the economic impact for retail in the state. He also noted that if the outages stay under a million people, which is the current status, the impact may not be too great.
“That’s still a lot of people, but if it gets into the next million and more into Southern California, then you’re talking an exponential increase of economic impact because of the population,” Gold said.
Annual hot winds known as the Santa Anas are at the core of PG&E’s reasoning for the forced outages, and the winds are indeed moving south. The utility provider for much of that region, Southern California Edison, notified roughly 170,000 residents Wednesday evening that it may also start shutting down power as a preventive measure against winds and dry conditions. To turn power back on, utility crews will need to visually inspect all power lines to ensure they are clear of dried brush and foliage that could easily spark — this process can take hours or days. A lack of inspection and maintenance to power lines by PG&E over the years is said by state officials to have caused 17 of 21 California fires in 2017 alone, along with last year’s deadly camp fire in Paradise, Calif., which killed nearly 90 people. The utility filed bankruptcy in January, citing an estimated $30 billion in liabilities for fires in 2017 and 2018. So far this year, PG&E has said it may be responsible for nine fires.
But the fact remains that this still is an unprecedented move for the utility and one that’s so heavy-handed it isn’t creating much in the way of goodwill or understanding for residents or businesses.
Ilse Metchek, president of the California Fashion Association, said the move by the utilities is little more than a “political ploy” given the massive liabilities they’re already facing. “They’ve never warned of outages, ever.”
As for the impact on fashion and retail, Metchek thinks it will actually be relatively little, with her suspicion that the regional outages will be a relatively brief period of 24 hours and that most everyone will still have cell phone service.
While service towers for cell phone providers are typically attached to a county power grid, the FCC requires that they all be equipped with backup generators in the event of an outage. Providers AT&T, T-Mobile, Sprint and Verizon have all put out statements explaining that cell service is largely uninterrupted, and in the few areas where it is, the situation is being rectified with additional generators and supplies.
“Twenty percent of all shopping is online anyway, and the Internet is open,” Metchek said. “I’m not sure this is going to be one of the big issues affecting retail at all, but there are plenty of others.”
If there does turn out to be a real impact on major retailers, Metchek noted that business insurance typically includes business interruption clauses, so many, if not all, will likely be covered for any losses they calculate due to outages.
Rachel Michelin, president and chief executive officer of the California Retailers Association, said there will be an impact, but mainly for smaller retailers. She said $1 billion is floating around for estimated impact, but it’s unclear to her what the estimate is actually based on, given the missing pieces of information on the specifics of the outages.
“I don’t have a solid number yet, but when you look at what’s going on, particularly with smaller retailers, there will be an impact,” Michelin said. “It’s a double-edged sword because you have those that lost energy and had to close, then you have those who tried to be proactive and put out extra funds that ended up keeping their energy.”
To her, the bottom line is that California is too big and economically important to still be dealing with unreliable energy resources.
“We’re the fifth-largest economy in the world and we shouldn’t have to worry about reliable energy in the state,” Michelin said. “We all need to be working together for solutions to keep it from having it again and again in the future.”
Emily Holt, owner of Hero Shop in Marin County Mart, just north of San Fransisco, is one small retailer who has gone unscathed by the outages so far. “It’s obviously something I’m paying attention to,” she said, “but for better or worse, we’re not preparing for the outage.”
For now, it seems that the vast majority of San Francisco proper is unaffected by the outages. While Half Moon Bay grapples with the shutdown, further south at the Stanford Shopping Center in Palo Alto, it’s still business as usual. East of San Francisco, parts of San Leandro fall within the affected area, but not the denser retail zones, where the local Eileen Fisher and outlet stores like Ann Taylor, among others, operate. None of the shops in Sausalito that WWD reached out to were affected, nor were destinations like Marin Country Mart.
Other indie store owners, like those in the area’s wine country, aren’t so lucky. For instance, Scott Lyall’s Clothes for Men has locations in both Napa and Sonoma, both of which landed within PG&E’s outage map.
“The power is completely shut down now,” Lyall said of his Sonoma store. “And here in Napa, we have power, but no Internet.”
By his estimation, the mix of outages is costing his business in the thousands of dollars per day, and Lyall said he does not have a clear idea of when the shutdown will end. And he’s not alone — “In Sonoma, pretty much the whole square is closed.”
But patience reigns supreme in wine country, a region prone to major wildfires, like the Northern California firestorm in 2017 and others that have raged since, including one just last week that consumed more than 500 acres in Napa County.
“I get it with the fires,” Lyall added. “I know a lot of people in Napa and Sonoma County that lost everything when we had our fires. I think the winds aren’t that bad, but who can predict the wind?”