Hurricane Florence: Impact on Retailers and Food-Service Operators Estimated at $700 Million
Key Points
Hurricane Florence, a 340-mile-wide Category 1 storm, landed early September 14 near Wrightsville Beach, North Carolina, with hurricane-force winds extending outward up to 70 miles.
- Florence was downgraded to a tropical depression on September 16 and has led to more than 23 deaths since it made landfall. The center of the depression is moving west from central South Carolina and continued flooding from heavy rain is expected in North Carolina, according to The New York Times.
- The potential economic impact from lost consumer retail sales is forecast at $700 million, according to weather analytics firm Planalytics. However, businesses in certain categories will benefit from this unfortunate event as residents affected by Florence restore and renovate their homes once the waters recede.
- After Hurricane Irma hit Florida in September 2017, US comparable-store sales rose by 7.7% at Home Depot and by 5.7% at Lowe’s, according to Thomson Reuters. Both companies reported more than $200 million in hurricane-related sales.
Hurricane Florence is about 340 miles wide, with hurricane-force winds extending outward up to 70 miles. It landed near Wrightsville Beach, North Carolina, early on Friday, September 14.
The storm was downgraded to a tropical depression on September 16 and has led to more than 23 deaths since it landed. The center of the depression is moving west from central South Carolina and continued flooding due to heavy rain is expected in North Carolina. Parts of several rivers in the region are rising and are in the “major flood” stage, according to The New York Times.
Weather analytics firm Planalytics currently estimates that the impact of Florence on retailers and food-service providers will be at least $700 million in terms of lost sales. The figure is subject to change based on the specific path of the storm.
When a hurricane is predicted, consumers make purchases based on their immediate needs and the forecast path of the storm; they skip or delay discretionary purchasing. As a result, home centers, warehouse clubs, gas stations and convenience stores all experience higher traffic ahead of a hurricane, while casual restaurants, entertainment centers and shopping malls lose sales.
Bottled water, generators and flashlights are among the typical items people purchase in preparation for a storm. According to Planalytics, retailers in the storm-affected areas are likely to have experienced a 20% increase in sales of canned goods, a 12% increase in sales of baked goods and an 8% increase in sales of dog food ahead of the hurricane hitting land.
Many retailers will also be negatively affected by purchases that consumers would typically make, but do not make up in the storm’s aftermath. Since Florence arrived on a Friday, retailers in the region will be impacted badly by the loss of sales over the weekend.
Finally, consumers who suffer a significant loss in this tragic event will likely reduce their discretionary spending during the coming holiday period.
The following retail and restaurant chains have more than 25% of their stores based in the path of Florence, according to Planalytics: Five Below, BJ’s Wholesale Club, Cracker Barrel, Advance Auto Parts, Cato Corporation, Ruby Tuesday, Texas Roadhouse and DSW.
Home Improvement Stores Set to Gain
Home improvement retailers tend to experience a meaningful uplift in comparable-store sales growth in the aftermath of major hurricanes. Last year, Hurricane Irma, a Category 5 hurricane and the second-strongest storm ever recorded in the Atlantic, made landfall in the Florida Keys in September. Home Depot reported a sales increase of approximately $282 million due to the hurricane and said that US comps rose by 7.7% in the third quarter of 2017, above the 6% consensus estimate tallied by Thomson Reuters. Similarly, Lowe’s noted that it generated about $200 million in sales due to Hurricane Irma; the company reported a 5.7% comp increase for the quarter, ahead of the 4.6% consensus estimate, according to Thomson Reuters.
After Hurricane Sandy hit the US in October 2012, Walmart booked approximately $35 million of expenses related to inventory damage, cleanup and other items, and Costco noted a 0.5% hit to monthly comparable sales. However, Home Depot reported about $377 million in additional sales due to Hurricanes Sandy and Isaac (Isaac occurred in August 2012) and Lowe’s noted that Hurricane Sandy boosted the company’s fiscal fourth quarter 2013 comps by 70 basis points and its fiscal first quarter 2014 comps by 45 basis points.