Landfall Could Mean Windfall

TAMPA, FLA. —Batteries, gas cans and bottled water will be hard to keep in stock this summer if consumers in hurricane-prone areas listen to the grim forecast for the 2007 hurricane season and heed the message of personal responsibility offered by emergency management officials.

June 1 marks the beginning of the six-month-long hurricane season, and while the peak months for storm activity are later this summer, June has emerged as a new seasonal selling opportunity for retailers who serve the more than 100 million customers living in states that border the Atlantic Ocean and Gulf of Mexico. The Home Depot last month began filling store shelves and distribution centers with commodity items such as gas cans, batteries and plywood that are in high demand during storm season.

“It’s showtime,” said Home Depot spokesman Don Harrison. “At this point we have got to be ready for anything.”

Typically, the most active months of the six month hurricane season are August, September and October. However, Florida again this year is offering a sales-tax-free period from June 1 through June 12 on hurricane supplies including generators up to $600. This year, Home Depot is also promoting the fact that it will match the state’s incentive by reducing the price of approved supplies by the same percentage as the sales tax that would normally be charged. The company also offers in-store clinics to educate people about storm preparation and how to choose an appropriate generator from among the 75 different models available on its Web site.

The concept of preparing for the unexpected has become an easier sell in recent years, especially for retailers based in Florida. Few retailers have as much exposure to hurricanes as Lakeland, Fla.-based Publix Super Markets. All of the company’s 892 stores are located in five southeastern states, including 645 stores in Florida where five hurricanes made landfall during 2004 and 2005. This year for the first time it plans to offer Midland radios for $29.99 and has created special endcap and floor displays with hurricane items and lists of items customers need to be adequately prepared.

Publix is also doing a better job of preparing itself. After four storms hit Florida during a six-week period in 2004, the company experienced increased costs of $63 million due to inventory losses associated with power outages and higher distribution and administrative expenses. The following year when Hurricane Wilma swept through South Florida, Publix report increased costs of $43 million. While the increased costs are somewhat offset by increased sales associated with customers stocking up prior to storms and replenishing perishables afterward, Publix took advantage of last year’s relatively quiet season to invest $100 million to upgrade stores with generators that will reduce losses related to product spoilage and enable doors to begin serving customers sooner after a storm passes.

Spokesman Dwaine Stevens said the company’s plan is for every Florida store, especially those in coastal areas, to have permanent generators attached to the store, while those located inland have the ability to accommodate a portable generator that can be rapidly deployed throughout the trading area.

Wal-Mart takes a different approach to the issue of backup power generation and determining product assortments in advance of a storm.

“The needs of an individual store are assessed at the local level,” said Bryan Koon, Wal-Mart’s senior operations manager in the company’s emergency operations department. “The market served by each store is different so there is no way to push out a standardized assortment.”

Wal-Mart stores are not equipped with generators, and instead provide docking stations to accommodate portable generators. In addition, the company leverages its historical competitive advantages of a private truck fleet and network of 126 domestic distribution centers to rapidly replenish stores in advance of storms. Eight of the company’s distribution centers in the southeast are designated as disaster distribution centers, and as such they have special sections where products related to preparation and recovery are warehoused and can be pushed out to stores within a few hours.

Retailers such as Publix, Wal-Mart and Home Depot tend to represent the front line of disaster preparation for most consumers, but Office Depot has recognized its core small business customers need to be thinking more about the issue as well. Office Depot knows a few things about disaster preparation since its South Florida corporate headquarters is just a few miles inland. However, the company surveyed small business owners and discovered 71% of those surveyed had no disaster preparedness plan. Accordingly, Office Depot created an educational brochure and promotion around the concept of “expecting the unexpected,” and a range of business products such as waterproof safes, computer backup products and external hard drives. Another aspect of the program involved a Webinar on disaster preparation strategies for small businesses presented by Tom Serio, Office Depot’s director of global business continuity management.

While retailers have the potential to generate a lot of sales from hurricane season—and profits, too, as long as storms don’t make landfall and force companies to incur recovery costs—preparation promotions are socially responsible because being prepared is every American’s civic duty. That’s according to Michael Chertoff, Secretary of the Department of Homeland Security, who was on hand with National Oceanic and Atmospheric Administration forecasters last month when they revealed the 2007 hurricane forecast at Ronald Reagan Washington National Airport.

“It is the preparation of individuals, families and businesses that makes the difference between survival and disaster when a hurricane hits,” Chertoff said. “That means preparing yourself with the necessary tools, food and water to sustain you for up to 72 hours.”

Chertoff’s message was echoed by Dave Paulison, administrator of the Federal Emergency Management Agency. Paulison said for the nation to survive storms better than it has in the past, individuals need to do a better job of preparing themselves and not become complacent such as when Hurricane Wilma hit South Florida, and thousands of people who should have been able to take care of themselves lined up for food, water and ice.

“We cannot tolerate that anymore,” Paulison said.

It was a harsh message and if consumers are willing to heed his advice retailers are at the ready.

“We have created a dual expectation with our customers that we are going to be the last store to close before the storm and after it has passed we will be the first store to open,” said Home Depot’s Harrison.

Wal-Mart, too, wants to keep its stores open as long as possible, but it also recognizes that its own employees need adequate time to prepare, and staying open too long in the face of an advancing storm sends the wrong signal to consumers.

For the record, this year’s forecast from NOAA calls for 13 to 17 named storms with seven to 10 of those achieving hurricane status with sustained winds greater than 75 miles per hour. Of those, three to five are expected to become major hurricanes, defined as having sustained winds greater than 111 miles per hour. NOAA doesn’t forecast how many storms will make landfall, but an increased frequency of named storms obviously increases those odds.

“It just takes one hurricane to make it a bad year of everyone here,” NOAA administrator Vice Admiral Conrad Lautenbacher said during the agency’s hurricane briefing.

The fear of that heightened possibility and the opportunity it presents for retailers to help people prepare will remain in place for decades based on current weather patter