Widlitz: Earthquakes, Hurricanes, Input Costs—Consumers' Triple Whammy
Residents of the East Coast are getting a double whammy this week.
First, a 5.8 magnitude earthquake with an epicenter in Virginiashook residents all the way to New York City. And now Hurricane Irene has her sights set on us, with her first stop in North Carolina, following a path to New York City and beyond.
While this may or may not be another “Storm of the Century,” many consumers remember our past friends Gloria (class of ’85, $1 billion damage estimate), Hugo (class of ’89, est. $7 billion damage) and Andrew (’92, est. $30 billion damage — and my personal favorite, as I rode this one out in New Orleans). And who could forget Katrina? (class of 2005, estimates up to $200 billlion damage).
While some of my favorite New Yorkers tell me they are heading to the cheese and wine shop to prepare rather than to Home Depot , most consumers are taking Irene seriously. First, the good news.
From an investment perspective, there are the obvious places. Consumers are flocking to Home Depot and Lowe’s stockpiling batteries, flashlights, generators and plywood.
The Lowe’s website has a preparation and clean-up guide, as the company does not want you to forget anything at the register. The company also has a video guide available in English and Spanish.
Home Depot also offers a checkliston their website. The areas in the path of Irene encompass approximately one-fifth of the two home improvement retailers. Not a bad opportunity to bump up third-quarter sales. And out-of-stock items are being dealt with, as Home Depot and Lowe's are moving in extra product from their warehouses. This is the kind of event these retailers prepare for a year in advance.
After consumers have boarded up their windows, they will need to think about food supplies and give themselves several days of provisions. Also fairly obvious: the one-stop Walmart will be a beneficiary, as consumers look to add non-perishable food, water and batteries. Pharmacy items are also recommended, just in case. Wal-Mart Stores has also embarked on a mission to return to the lowest cost provider. This may be a good time to make that statement. While Walmart might not help you board up your windows, they can satisfy just about every other need.
Don’t forget the Dollar Stores (Family Dollar, Dollar Tree and Dollar General). They have been nipping at Wal-Mart's heels for some time now, as consumers prefer to do fill in trips and stay closer to home. Also on the list: Costco for bulk items; and fuel comps should get a lift this month, as consumers load up on gas before the storm hits.
Lastly, let’s not forget about the four-legged family members. That is the valuable lesson pet owners learned during Hurricane Katrina in 2005. That puts PetSmart on the list as well, as consumers add extra food supplies for their pets.
And now for the potential negative news? Back-to-school dates are staggered from North Carolina through the Tri-State area. But in general, school re-opens anywhere from Aug. 25 (Charlotte) to Sept. 8 (NYC).
As consumer wallets remain tight, particularly in the middle- to low-income range, stocking up on hurricane items could potentially pull dollars away from that new backpack or pair of jeans that mom and dad were willing to splurge on this weekend.
That's bad news for the retailers that do not have differentiated product in an already inflationary environment (remember, input costs on apparel will be up as much as double digits this fall). Now that may just turn a double whammy into a triple whammy for East Coast retailers.
Stacey Widlitz is an independent retail analyst and consultant. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years