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Hurricane Irma Could Pack a $1.45 Billion Retail Punch

WWD

By: Sharon Edelson

The double whammy of Harvey and Irma could have a profound effect on the retail industry, which is already hurting.

Hurricane Irma, which on Wednesday was bearing down on Puerto Rico on a trajectory that could hit the Florida peninsula, has the potential to impact retail sales nearly twice as much as Harvey’s recent impacts on Houston.

A category five hurricane, Irma could potentially be bigger, more destructive and costlier, with lost sales estimated at $1.45 billion by Planalytics.

If Irma continues on its path as forecast it will reach the Florida Keys on Friday. The hurricane has its sights on major markets in Florida such as Miami, Fort Lauderdale, Orlando and even Tampa, which it could hit on Saturday. Irma could cause life-threatening winds of up to 185 miles per hour, storm surges and tidal waves, according to the National Hurricane Center.

Following consumers in Texas and Louisiana affected by Harvey, if Florida gets hit, that will leave a meaningful portion of U.S. retail impacted. “That [represents] a very large percentage of U.S. retail,” said Instinet analyst Simeon Siegel. “It’s a pretty scary thing to contemplate.”

“Irma is a larger storm in size as well as a stronger storm, meaning that damages will be driven by high winds and storm surge,” said Evan Gold, executive vice president of global services at Planalytics, adding that Irma’s estimated impact of $1.45 billion on retail is “potential to be lost and it won’t come back.”

Accuweather said Hurricane Harvey will negatively impact the Houston economy by $160 billion, however, it’s too early to reach any conclusions about Irma’s potential damages. Gold said, adding, “We’re still several days out with Irma.

“The population currently under threat in Florida alone is three times the amount impacted by Harvey,” Gold said. “Irma is also threatening the Southeast, including major markets such as Savannah, Ga.; Charlotte, N.C., and Columbia and Charleston, S.C.”

Retailers with high exposure in the affected areas include Wal-Mart Stores Inc., with more than 400 Wal-Mart, Sam’s Club and Neighborhood Markets. Also, Stage Stores, Stein Mart, Target and dollar stores.

“Hurricane Irma will be a disaster that shuts down spending in discretionary categories for the short term,” said Greg Portell, lead partner in the retail practice of global strategy and management consulting firm A.T. Kearney. “We’ll see an immediate lift in spending on emergency items and stockpiling of food and water. Most retailers and consumer packaged goods companies regularly use weather forecasting to pre-position inventory of items most likely to be purchased at times like these. The challenge will be how fast the inventories can be shifted so soon after dealing with the impact of Harvey. Spending in discretionary categories will rebound strongly once recovery efforts swing into full speed and people begin to replace previous discretionary purchases lost in the storm. We’ll see an unseasonal hike in those categories.”

Instinet’s Siegel said Irene’s impact may have an impact on retail well beyond the immediate. “It seems fair to be concerned that people impacted will feel less like gifting and less loose with disposable income,” he said.

Unlike some analysts who have said that Harvey could be a boon for the Houston economy, Gold said, “I don’t buy into that. There are certain sectors that will do well, but on a net-net basis, no. These things are a net negative on the economy. Consumers spend, but not on discretionary things.”

“We believe that fears around holiday spending within impacted areas (Harvey and the pending landfall of Irma) appear fair, but we highlight (and apologize for the callousness) that blaming hurricanes for a weaker Q4 may end up proving a ‘convenient’ excuse for companies that had risk to their hockey-sticked guidance anyway,” added Siegel.

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