Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

The Economic Impact of “Superstorm Sandy” from Planalytics

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As the remnants of Hurricane Sandy move inland through the interior Northeast, Great Lakes and Canada, it leaves a path of catastrophic destruction in its wake. While the total economic impact will be finalized over time, initial estimates are that damages from Sandy will top $20 billion, and this will likely rise as the storm is still active and enveloping large population centers. If estimates hold, Sandy will rank in the “Top 10” of most costly storms, more expensive than Hurricane Irene in 2011, which had estimated damages of $15 billion.

The primary reasons why Sandy’s cost will be so significant are related to three key ingredients.

1.     The size of the storm – Sandy stretched over 900 miles and is extremely large in terms of storms.

2.     The population impacted – Approximately one-third of the U.S. alone is being impacted by this storm.

3.     The duration of the storm – Sandy began impacting the Southeast last weekend, and will continue to impact North America through the end of this week.

A few notable facts about Superstorm Sandy, which is an extremely rare, late season storm.

  • Sandy caused the New York Stock Exchange (NYSE) to close for the first time since 1985 due to a weather related issue, and the first time since 1888 that it was closed for consecutive days due to weather.
  • Sandy triggered an estimated 8 million power outages so far in the U.S. with New Jersey and New York City having the largest impact, with outages being reported as far west as Cleveland. For New York City, this was its largest ever weather related power outage.
  • Sandy produced more than 15,000 flight cancellations so far, which, for reference, is much larger than Hurricane Irene which resulted in roughly 10,000 flight cancellations.  In addition, mass transit as well as roads and bridges in and around the major cities of the I-95 corridor have been closed.
  • 10 states declared a state of emergency with parts of New York and New Jersey already being declared federal disaster areas.
  • Sandy brought significant snowfall to the Appalachians.  Locations in western Maryland, West Virginia, Virginia, and Tennessee reported up to two feet of heavy wet snow.
  • Planalytics expects that some consumer activity was shifted due to Sandy, with some purchasing being moved forward. Additionally, there are millions of dollars in economic activity and productivity that was lost and simply will not and cannot be recouped.

Business Impacts So Far

Virtually all major retailers had at least 10% of their store base in the path of the Sandy. Leading up to the storm, home centers, mass merchants, and grocery stores experienced a surge in traffic as consumers were purchasing “must have” items. Additionally, quick service restaurants, gas stations and ATM’s experienced strong traffic, particularly in and around communities where evacuations occurred. Significant media coverage during the weekend leading up to Sandy’s arrival ensured consumers had ample opportunity to stock up and prepare.

Department stores and specialty apparel chains, particularly in shopping malls and strip centers, all experienced net-losses from the storm due to low traffic, especially considering the storm preparation period was over a weekend when the bulk of most retail sales take place. In addition, the storm occurred during the final weekend of retail October, and during the final weekend before Halloween.

What Happens Next?

Large scale businesses typically have sophisticated supply chain systems and processes in place to quickly replenish products to the impacted areas and serve as a value-added member of the communities where they operate.

As Sandy continues to impact North America throughout the week, Planalytics estimates that the following need-based/consumable items will remain in the strongest demand over the coming days as consumers clean up, restore power, and get their lives back to normal.

Consumables: Batteries, bottled water, canned foods, packaged ice, etc.
Home Center Items: Generators, pumps, roofing, flooring, lumber, and other building materials as a result of the damage.
General Clean Up Items: Trash bags, mops, buckets, tarps, etc.

Longer Term Impacts

From a broad perspective, the long-term economic impacts of Superstorm Sandy will play out over time.  Certainly Sandy is likely to result in the largest insurance losses to the industry this year, but the large scale economic impact is likely to be minimal due to reconstruction and rebuilding efforts.

From a retail perspective, there are likely to be longer term impacts, as consumers are now spending “to need” and will be doing so post storm to get their lives back in order. Significant spending now/this week is likely going to cause many consumers to revisit their holiday shopping budgets, and could impact the 4.1% growth projected by the National Retail Federation during the holiday shopping season. Retailers, particularly those selling discretionary items (apparel, accessories, etc.) who are already facing lost sales due to store closures and decreased foot traffic, may need to reduce prices and promote more heavily to drive consumers into stores, particularly in impacted areas.

Weather Brings Retailers a GOLDEN Egg this Easter Weekend!

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From Bill Kirk, Weather Trends International:

After three very disappointing Easter periods the past few years with record cold and snow, retailers are about to lay a golden egg this holiday weekend (the most important period in Q1).

The weather will be nothing short of exceptional with the NORTHEAST having the most ideal conditions – warmest and driest in 20+ years for the Easter weekend.  The last time Easter weather was this ideal was in middle April 2006 when 1,543 record high temperatures were set across the country – this year is even better in the Northeast!  In 2006, Easter weekend temperatures in the Northeast averaged 73°F, 2007 38°F, 2008 46°F, last year 57°F and this year near 80°F!  This will result in strong double and even triple digit sales gains over last year for Spring seasonal items like Easter seasonal categories/candy, fans, garden items, grills, deck stains, car wash/wax, bug sprays, allergy medications, suncare, apparel, sandals, cold beer and beverages, outdoor BBQ grilling food categories, ice cream snacks and more.

Across the rest of the country the holiday weekend (Friday – Sunday) conditions are still favorable for the Eastern half of the U.S., but a bit colder/wetter in the West.  Here’s the regional summary:

SOUTHEAST: Warmest in 4 years (average high temperatures 81°F) and 57% drier than last year.

SOUTH CENTRAL: Warmest in 4 years (average high temperatures 75°F) but on the damp side with the threat for widespread thunderstorms.

NORTH CENTRAL: Warmest in 4 years (average high temperatures 62F) with some rain South.

NORTH ROCKY MOUNTAINS: 11 degrees colder than last year but a little drier than last year – Sunday is the nicest day.

SOUTH ROCKY MOUNTAINS: Cold start but warmer finish by Sunday.

SOUTHWEST: Coldest in several years but a warm up by Sunday.

NORTHWEST: 6 degrees colder than last year and the wettest in 5 years so this is the least favorable region this weekend.

Nationally, the 5-week retail calendar March is on pace to be the warmest and driest in 3 years with the least snowfall in 20+ years (snowfall down 61% vs last year).  Retailers are coming off the worst March ever last year when retail same-store-sales (SSS) were down 5.1% according to ICSC’s tally of retailers, so the combination of easy sales comparisons and exceptional Easter weather will bring a lot of golden eggs when retail sales are announced April 8th!  Expectations on Wall Street are +3.0% to +3.5% while WTI expects retail industry SSS gains to be much stronger at +4.5% to +6%.  The 4th straight better than expected month for retailers!

Olympic-sized Update

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I had a few folks comment that my last post was perhaps the most negative that they had seen on Making Cents (given my tendency to try to find the silver lining in most cloudy situations), but remember, I was quoting Bill Kirk who is the CEO of Weather Trends International. I did so because Bill and the folks at WTI have an amazingly accurate track record of forecasting retail sales based on their weather models.

So after the February retail report actually showed same-store retail sales actually INCREASED by 3.7%, I emailed Bill the following:

Bill:
After your persuasive post on the downward expectations on February SSS sales due to snowmageddon conditions, I’ve been checking the SSS reports released today (from ICSC and others) which seem to indicate a 4% increase for the month, which is actually higher than the 2-3% Wall Street expectations. Is this correct? If so, given your excellent track record, is this just one you missed this time?
Thanks for your input,
Charlie

As usual, Bill is always prompt in returning comments on WTI forecasts and he emailed back with the following reply:

Charlie,
Good morning. Retailers for the most part were all well above expectations but many did comment that the record snow cost them 1% to 2% in lost sales. Bottom line, they overcame the 9 major hurdles but they were up against the easiest February comp ever last year which was -4.3% so the +3.7% gain captured most but not all of last year’s huge losses. The expectations for March have been set very low at +2.5% by Wall Street but with the first major Spring surge of warm weather late month around Easter, retailers are poised for a blow out month with exceptional sales gains well above expectations. Why? Because they’ve had two back-to-back really bad March sales in 2008 = -2.3% and last year -5.1% due in large part to cold/snowy weather around Easter the past two years. Net-net we missed this one but Wall Street was surprised by the prior 2 strong months so we’re still up on the street!
Bill

I agree. I still hold a great deal of respect and will continue to follow the weather-based retail modeling by WTI (and others) because they represent one more layer of information to help us all in making more informed managerial decisions. Just goes to show that its hard for anyone who’s brave enough to do some forecasting to get it right 100% of the time!

That being said, I do agree with Bill that expectations for March are OPTIMISTIC given the level of “pent-up demand” that is generally being touted in the marketplace. Again, last spring was pretty good given the circumstances and with the industry going into this spring with consumer confidence a lot higher than last year; the Conference Board’s leading economic indicator index having increased for the 10th straight month; and the latest job market report mostly positive, I feel we are positioned about as well as we could be going into the spring season.

All that is left to do now is to put our best differentiated foot forward and make sure that we not only exceed consumer expectations, but delight them in the process!

January 2010 Retail Business Weather Round-up

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“The most important and statistically significant factors for stronger retail sales performance in January are the consumer confidence index followed closely by less severe weather,” said Bill Kirk, CEO Weather Trends International. Last year the January index was at an all time low (38) which in part explains the disastrous retail SSS results of -4.8% according to ICSC’s tally of 60 major retailers vs. this year’s confidence index of 53. While 53 is nothing to get too excited about (90 is a strong index indicating a strong economy) it’s still better than last year and combined with the more favorable weather trends retailers should post gains in-line to higher than expected when results are announced Thursday, February 4th. Over the past 25 years a stronger than expected December (December 2009 brought very strong industry gains of +3.6% according to ICSC) is followed by a stronger than expected January 82% of cases so the math suggests more retailers will again be in positive territory!

For a complete business-weather roundup click on the link below for a detailed PDF summary report:

U.S. January 2010 Retail Business Weather Summary Report

It still comes down to local economic (and weather) influences

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I’ve reported in a lot of seemingly negative economic news lately, but it remains unclear whether the current state of affairs meets the economists’ definition of a recession (a widespread decline in economic activity lasting more than two consecutive months). But, to take a line from the political world, all economics is local.

For example, there are a few economic pundits who proclaim that we are already in recession. Others counter with other data & statistics to the contrary. One thing is for sure, some states have most certainly experienced a period of contraction. But this has been far from uniform with a dozen or so states experiencing severe contraction while others have experienced some expansion (according some economic indicators) in recent weeks.

While Green Industry business owners and workers in certain parts of the country have weathered recession-like conditions for months (e.g. job losses, home foreclosures, declining consumer confidence, lower business spending), others that I have talked to have been doing ok. So it seems to me that [as in the past] some areas are likely to feel less of an effect from the crawling economy than others.

The main reason? Obviously some areas are experiencing more of a housing “bust” because they first experienced more of a housing “boom.” Those communities who learned hard lessons from recessions past and have diversified their local economies will obviously fair better than those who tend to rely on a small set of local enterprises.

What does this have to do with you? First of all, it is way to early to throw in the towel! Second, even the shrewdest of pundits are not able to predict the weather patterns in your area, which has almost as much impact as local economic conditions — maybe even more in some years. As my friend Bill Gouldin of Strange’s Florists, Greenhouses, and Garden Centers in Virginia puts it: “Economic downturns are like getting the flu; rainy weekends in the spring are like pneumonia; and drought on top of that is cardiac arrest!“

So continue to put your best differentiated foot forward, exceed customer expectations, and keep spreading the message about the healthful aspects of fresh flowers, the positive ROI that landscaping adds to curb appeal and home values, and how we were “green” before green was cool (to quote Tony Avent of Plant Delights Nursery)!