As I am writing this, Sandy has recently made landfall — which is remarkable given how bad things look even before the storm has really hit. I hope everyone back east is safe and dry.
Given the size of the storm, it seems that the clean up effort is going to be a huge project and for many people that is going to start with a run to their local home improvement store (if they haven’t been there already to get ready for the storm). So how do the likes of Home Depot and Lowe’s get ready for these storms? Here’s what the Wall Street Journal says (Home Depot, Lowe’s Prepare Post-Storm Inventory, Oct 29):
Terry Johnson, a senior vice president of operations at Lowe’s overseeing the Northeast, said in an interview demand has been “incredible” throughout the region. The company has been able to keep up with it for the most part, noting generators in particular are popular.
“We saw this coming, we started early, and we took some calculated risks,” he said, such as pulling in product supply to certain areas before Lowe’s had the path of the storm nailed down. …
Ahead of Sandy’s arrival, both Home Depot and Lowe’s activated their respective disaster-command centers, hubs that coordinate across the companies’ teams and with emergency-response agencies at all levels of government. Both companies’ centers have been working to get products into stores for storm preparation, while simultaneously planning to have inventory staged outside the storm’s path to be deployed once roads are passable again.
Mr. Johnson of Lowe’s said following past disasters like hurricanes, the company has been able to turn itself around to post-storm inventory in about a day.
“Once we’ve identified the need, we’ll have this product put on a truck, if there’s enough to fill it, we’ll release it,” he said. “It’s really important to be efficient, but it’s more important to get the product where it’s needed.”
Big box stores’ ability to respond to this kind of disaster has been reported before (see, for example, here). The interesting twist in this report, I think, is Lowe’s willingness to gamble a bit on sending out product before knowing exactly where the storm was going. Ex post, it seems a fairly safe bet if only because the storm turned out so big and has impacted so much of the East Coast. Still it is interesting to think of the kind of calculations and “known unknowns” that go into the decision.
A final point, this level of response has to be good for business. First, there aren’t many other times in which you can sell a truck full of generators or chain saws at full price. Second, the firms must earn some good will with customers by being open, stocked, and fairly priced in a moment of need. As the article tells it, the real pay off may be from the latter rather than the former as natural disasters don’t move the earnings needle that much.
Morningstar analyst Peter Wahlstrom said because sales related to disaster preparation like hurricanes—plywood and generators—tend to be lower-margin products, storms like Sandy have a limited effect on home-improvement retailers’ earnings.
In the spring of 2011, when tornadoes ravaged the South and caused billions of dollars in claimed damages there, per-share earnings at Home Depot and Lowe’s reflected an impact of only about a penny, he said.