Gold: Sandy’s Economic Impact on Shopping

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Hurricane Sandy, a rare, late season storm, is already having a significant economic impact and is poised to be one for the record books in both meteorological and economic terms.

The exact amount of economic impact Sandy will have cannot be finalized until well after the event; however, this storm has the potential to be larger than Hurricane Irene, which had an estimated $10-$15 billion impact last year and was in the "Top 10" most costly hurricanes.

Sandy will slow down after making landfall and is not only poised to impact the major cities of the Northeast including New York City, Boston, Philadelphia, and Washington DC/Baltimore, but will leave impressions on interior markets such as Buffalo, Harrisburg, Syracuse, and Albany, as well as Canadian cities such as Toronto and Ottawa.

When everything gets tallied up, Sandy is estimated to have an influence over one-third of the population of the U.S.

For the hardest hit areas, the economic impact will be driven by insurance losses and lost productivity due to people staying home.

Sandy Impact on Insurance

Most major retailers have at least 10% of their store base in Sandy's path, with impacts varying by type of business. There are several types of businesses that experience a net-negative when it comes to events such as Sandy. Shoppers generally avoid malls during hurricanes, and since consumers are purchasing "must have" items, any "nice to have items" fall off of shopping lists. This means Sandy will be a net-negative to apparel and mall based retailers such as department, toy, jewelry, and sporting goods stores.

Sandy Impact on Retailers

Restaurants can experience a mixed impact, with fast food and casual dining often seeing a surge in traffic in advance of the storm, particularly along any evacuation routes. More formal dining locations often see a drop in customers.

Sandy Impact on Restaurants

Of course, there are businesses that will see an uptick in sales.

Certainly home centers such as The Home Depot, Lowe's, and ACE Hardware have already experienced a huge increase in traffic over the past week as consumers have come in looking for items such as generators, flashlights, batteries, plywood, and pumps.

Sandy Impact on Home Improvement & Food Stocks

As many people are anticipating the possibility of being housebound, there is a surge of traffic into grocery and dollar stores as people stock up on staples and canned foods, water, and bagged ice.

Gas stations and convenience stores also see a huge increase in activity, while broadline retailers and Warehouse Clubs such as Wal-Mart, Target, Costco, Sam's Club, and BJ's also see a surge by providing opportunities for "one-stop shopping" for all these items. BJ's is likely to see an above normal impact because over 50% of their clubs are in the path of Sandy.

Sandy Impact on Energy

All of these retailers are likely to see increased traffic after Sandy departs, with consumers looking for various clean-up items such as chainsaws, house repair materials, and general cleaning materials. Successful retailers view this as a time to be a valued resource in the communities in which they operate, and have products readily available before, during, and after the storm to the best extent possible.

When Sandy moves away next week and media coverage subsides, there is a longer term economic impact to think through as well. As the all-important holiday shopping season approaches, general projections are that consumers will spend approximately 4% more than they did last year. That projection is likely is to see some pressure as consumer spending related to Sandy – both pre- and post-storm, will likely cause many consumers to revisit their holiday shopping budgets.

While the total economic impact from Sandy will play out over time, it has already begun, and is poised to leave a significant mark that that will be referenced for years to come.

Evan Gold is Senior Vice President of Client Services at Planalytics, Inc. – a business weather intelligence company which enables businesses to understand, quantify, and manage the impact of weather on consumer behavior to improve both strategic and tactical decisions.