AFTER THE STORM

MARIA TORTORETO

Tomorrow will be just another day on the Gulf Coast. On the first anniversary of Hurricane Katrina, retailers are keeping their focus on rebuilding, serving the communities and looking ahead to the future.

"The whole New Orleans retailer landscape has changed," said David Livingston, an independent consultant for supermarkets with about a dozen clients in the Gulf region.

Populations have shifted from the hardest hit areas of New Orleans and the surrounding counties in Louisiana and coastal Mississippi, and while some of those areas have seen people return, others have lost much of their population. (See table.)

"The population is coming back, but it's been slowing to a trickle," Livingston said. "Rebuilding regulations in New Orleans have caused rebuilding there to be very slow."

Guidelines issued earlier this year by the Federal Emergency Management Agency regarding elevation of new construction, which could be very costly, have been a subject of debate, and have caused many residents to postpone moving back. Without residents, retailers can't open either.

"This is a bit of a moving target," said Richard Stone, vice president, and director of commercial sales and leasing at Latter & Blum, a commercial real estate firm based in New Orleans, of the guidelines. "There haven't been totally clear definitive guidelines published by FEMA."

Stone said there hasn't been much activity in property sales or new businesses moving in, and he doesn't expect much in the next six months, at least. "There are still a lot of unanswered questions," he said. However, he thinks that when retailers do start to move back into the hardest hit areas, like St. Bernard Parish in Louisiana, they'll likely come back to their existing locations.

New Opportunities

Despite the destruction, several large retailers have reported increased overall sales, as compared with pre-Katrina levels, because many people displaced by the storm have stayed in the region.

At Sav-A-Center, a 28-store division of A&P, Montvale, N.J., that operates in the Greater New Orleans area, overall sales were up, according to Glen Dickson, vice president of operations. In some areas where the chain operates, the population is up 15%-20%, so those stores are doing more volume, Dickson told SN.

Winn-Dixie Stores has reported "positive" sales in the area, according to spokeswoman Terry Derreberry.

Wal-Mart declined to provide specifics, but the company is "pleased with how [stores in operation] are performing," spokeswoman Sharon Weber said.

"Supermarkets that have managed to stay open have experienced huge sales increases," Livingston said. "Winn-Dixie appears to have disproportionately benefited compared to other stores, because they had a dominant position in New Orleans. When residents moved to outlying areas, they didn't know any other stores, so Winn-Dixie increased in sales mainly because of name recognition."

In November, Jay Campbell, president and chief executive officer of Associated Grocers of Baton Rouge, La., told SN that sales were about level compared to pre-Katrina, but there was a significant demand shift.

"We've continued to see that shift remain intact," he said this month. "There's been a slight erosion in volume, which means some people have moved away for good or back to their home markets, but that's hard to gauge. Some competitors are not there, so we can't get a full read on situations."

However, new opportunities for retailers could be on the horizon.

"In some of the western parishes [of Louisiana] up to Baton Rouge and the North Shore, population has increased, and I think you'll see a permanent bump in those areas," Stone said. "As those numbers continue to grow, I think grocers will take advantage."

"I think we will see a lot of new supermarkets being built in those areas," Livingston echoed.

Possibly because it had only a small number of stores closed, Wal-Mart is emerging as a more important presence in the market.

"They've been pretty aggressive," Stone said. "And they continue to be a major player."

Livingston agreed. "Wal-Mart is now dominant."

Returning to Normal

Supermarket operators said they played a major role in helping return the community to a sense of normality.

"Supermarkets are probably one of the most critical businesses to return in an effort to rebuild a city," Derreberry said. "People have to eat."

And they need their medicine. In the wake of the hurricane, Winn-Dixie dispatched two mobile pharmacies to Slidell and New Orleans to fill prescriptions, regardless of whether they were for Winn-Dixie customers. The chain also implemented its Neighbors Helping Neighbors program where customers can donate money directly to the American Red Cross Disaster Relief Fund. Last year, it raised over $200,000.

In Mississippi, a Wal-Mart Supercenter in Waveland in Hancock County, another devastated area, sold groceries and other basic items under a 16,000-square-foot tent in the parking lot immediately following the storm. In November, the store opened with a limited shopping area, and on Aug. 4, it reopened its original size with free food, music and activities for the community.

"This is a town that has pulled itself up by its own bootstraps," Weber said. "People have just worked together, and we are thrilled to be a part of it. This is truly a celebration of grit and determination."

"Regardless of what retailer you are, in whatever industry, you have a two-pronged problem," Campbell of AG-Baton Rouge said. "Can you get employees back, and if so, can you get customers? Housing is still the biggest problem. Many places have not yet started the process of debris cleanup or rebuilding, because many questions still remain."

Other retailers have indicated that their major challenge has continued to be a labor shortage, and have had to offer higher wages and benefits as a result.

Higher Labor Costs

"The new minimum wage is about $10 an hour," Livingston said, referring to the rate retailers must offer to attract talent. He also said some supermarkets are offering up to $500 in monthly bonuses to entice employees to stay.

"Overall there is a lack of available working population," Dickson of Sav-A-Center said. "As the recovery process continues, more and more businesses have reopened, and the pool of applicants is getting smaller. We now offer hiring bonuses, created more full-time jobs, and run hiring fairs to try to reach the population as it returns. However, we continue to see competitors reopen, and we'll see more assimilation of that in the next six to 12 months."

Wal-Mart also said staffing is a problem. "I think we are like any other retailer," Weber said. "We are doing the best we can. We'll keep trudging along, and as more population comes back, it will solve itself."

The newly reopened Wal-Mart Supercenter in Waveland, although back to its original size of 205,800 square feet, as of earlier this month had only 300 workers. Prior to Katrina, it employed 425.

Staffing isn't the only challenge to getting stores up and running. Insurance remains an issue, as does restocking, sources told SN, although retailers declined to provide details.

"One of the biggest problems was looting," Livingston said. "I think stores realize now the devastation that could cause. If you want to get reopened quickly, you've got to protect your store from looters, because in many cases that did a lot more damage than the floods, in the places where people were evacuated but the actual storm damage was not so bad."

Winn-Dixie operated 125 stores in the Gulf region prior to Katrina. In November, 14 stores were still closed, and 10 remain closed this month. "We reopened stores on a case-by-case basis, taking into account damage assessments and repairs, the rebuilding of local infrastructure and the return of the region's population," Derreberry said. "We will continue to evaluate the region and reopen stores as appropriate."

Sav-A-Center has 23 of its stores operating, but five stores - two on the Mississippi coast, one in eastern New Orleans and two in Chalmette, La. - are still closed. "Based on the recovery processes in those locations, we don't anticipate reopening those stores in the near future," Dickson said. The company had seven unopened stores in November.

A&P is still negotiating with its insurance companies about overall losses, Dickson noted.

Wal-Mart had seven stores not in operation in November, and has just three stores not in operation now. "When they will [open] or if they will is not determined," Weber said. "We are opening what we can as soon as we can. There are a lot of issues you have to look at."

Wal-Mart did have insurance for the storm, Weber said.

Planning Ahead

Most retailers said that although their companies had a disaster plan in place prior to Hurricane Katrina, no one anticipated the scale of the emergency caused by that storm.

"We had completed a disaster-preparation plan in May 2005," said Campbell of AG-Baton Rouge. "But [Hurricanes Katrina and Rita] created some situations that were not fully contemplated by any plan anybody had. Two key things were telecommunications failures and housing, nuances that weren't really contemplated [on such a major scale]."

Campbell noted that AG has expanded its contingency plan, including new steps to take in the event of another disaster, but "the plan is only as good as the execution and completion of the plan," he said. "There are always variables, and you never know what will happen."

Winn-Dixie's plan includes equipping each store with a generator to allow the store to remain open to sell non-perishable product only. It also has a limited number of 500-kilowatt, 208-volt portable generators - each of which can power an entire store, according to Derreberry.

"We learned that having the ability to communicate with our associates impacted by a storm is paramount," she said. The company now provides all employees with an emergency contact card, and has set up an emergency employee hotline and developed a website to help workers better prepare for hurricanes. "As with most things, experience allows us to step back and evaluate both the positive efforts worth repeating and the areas that offer opportunity for growth."

Wal-Mart has established a permanent toll-free phone number for workers to call during an emergency. The company has also been working with various government agencies to make sure they can execute their plan efficiently, and has sent an emergency management director to meet with state emergency officials to set out expectations about what the company can and can't do.

Wal-Mart also has encouraged employees to utilize OneStorm.org, a website designed to help people organize their own hurricane plans.

Although Publix Super Markets wasn't directly affected by Katrina, the Jacksonville, Fla., retailer is a veteran when it comes to hurricanes. "Being based in Florida, we deal often with hurricanes," spokeswoman Maria Brous said. "Because of our location, we have to have disaster plans. Every year we go back and say what worked and what didn't."

After Florida was hit with four major hurricanes in 2004, Publix decided to install 500-kilowatt generators in 400 of its hurricane-prone stores in Florida, coastal Georgia and South Carolina at a total cost of $100 million, Brous said. These generators would allow the entire store to operate with full power, and would serve as a backup to the generators already in place, which are only 65 kilowatts and can provide only partial power. One-third of the generators were installed by the July 1, 2006, deadline, with the rest to be completed by July 2007.

"We had a plan prior to Katrina and we utilized it, but we've learned a lot since and updated it to be better prepared for the next one, which there will be but hopefully no time soon," Dickson of Sav-A-Center said. "You can never underestimate the tenacity and will of the people to try to recover, and you can never have enough plans in place to prepare for the next one."

Gulf Coast Exodus

Population estimates for areas with the highest population decreases after Hurricane Katrina

July '05*; Oct. '05**; Jan '06**; July '06**

Orleans Parish, La.: 437,186; 92,660; 173,720; 214,486

St. Bernard Parish, La.: 64,576; 2,685; 7,292; 15,483

Jefferson Parish, La.: 448,578; 303,411; 401,241; 411,003

Plaquemines Parish, La.: 28,282; 11,902; 18,594; 19,896

Hancock County, Miss.: 46,240; 30,409; 36,018; 38,018

*Pre-Katrina estimates by the U.S. Census.

**Estimates by Claritas, San Diego, a demographics and marketing research company.