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Loss Prevention

Weathering a Crisis

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Tornadoes in the Southeast, wildfires in the West, flooding along the Mississippi and hurricanes on the Gulf Coast. It seems there’s no shortage of natural disasters these days, and the federal government has begun to appreciate the role retailers play in disaster recovery by expanding their participation in disaster preparation exercises.

Held in May, the National Level Exercise (NLE) was designed to prepare and coordinate a multi-jurisdictional response to a catastrophic event. This year’s NLE simulated a major earthquake along the New Madrid Seismic Zone that stretches southwest from Missouri. As part of the National Private Sector Working Group, retailers played an expanded role in the development of the national goals and objectives.

Emergency management officials throughout the Gulf Coast region learned valuable lessons about the role retailers play in getting communities up and running following a natural disaster. After Hurricane Katrina in 2005, residents there had to rely on distribution of food and water from the National Guard as few supermarkets were open. While federal and state governments can step in during times of disaster, they’re rarely able to distribute food, water and other supplies as effectively as retailers.

“The retail sector is the fabric and backbone of every community,” says Robert Dix, chairman of the National Private Sector Working Group for NLE 2011. From past disasters, “We know that the recovery of a whole community is dependent on the participation of retailers of all sizes.”

Dix says retailers have proven to be quite generous in times of need (often organizing volunteers and donating supplies to organizations like the American Red Cross and The Salvation Army) and that their specialization in logistics management allows them to move product quickly. “I think people sometimes don’t realize the need, value and generosity attached to that. It is critical to be able to draw on their resources.”

NRF senior asset protection advisor Joe LaRocca says it was appreciation of the retail industry’s importance that earned it a central role in this year’s NLE. Merchants found themselves on the same calls with first responders and disaster managers as the incident was being simulated.

LaRocca said this year’s NLE was even more intense given that actual disasters — in the forms of tornadoes and floods — were unfolding during the exercise. “We had this parallel universe where you had live events taking place at the same time,” he says. “It really helped reinforce why [the exercise is] so important.”

Preparing for disaster
At the core of every retailer’s emergency plan is ensuring the safety of employees and customers and protecting stores and their physical assets. Once danger has passed, it’s all about getting back up and running as quickly and safely as possible.

Home improvement and hardware stores are especially important in the aftermath of a disaster. Craig Fishel, a spokesman for The Home Depot, says the company understands that communities depend on its stores reopening as quickly as possible following a tornado or hurricane. The company manages its emergency operations through a command center in Atlanta that is staffed by more than 400 people. Relying on weather services, preparedness plans and company-wide communications, The Home Depot strives to be the last store to close before a disaster strikes and the first store to reopen afterwards without putting anyone at risk.

“We have also overhauled our supply chain in the past couple of years to make sure that we have product poised to go in beforehand and immediately following,” Fishel says. The Home Depot works with suppliers to ensure that it has the products that can specifically meet the needs of the disaster. For instance, in the face of an advancing hurricane, shoppers often empty stores of plywood and generators. In the aftermath of a flood, consumers seek box fans, trash bags, garbage cans and claw hammers for tearing out soggy sheetrock.

Ensuring a steady supply of the right products requires close communication with suppliers and a careful eye on inventory at the regional level. “We have the ability to track what is moving in and out of stores, so if a store is running out of plywood we can replenish it on time,” Fishel says. “We’re learning to vastly reduce the number of out-of-stocks.”

Supermarkets and department stores also feel the pressure to quickly recover from a disaster. Retailers that might ordinarily be fierce competitors come together in times of emergency, Dix says. During the NLE, it was “amazing to see the collaboration and generosity in putting down the individual hats of their respective organizations for the common good.”

James Waldrop, manager of corporate crisis and emergency operations for Sears Holdings Corporation, says emergency preparedness must start with executive-level support and work its way down to front-line employees.

Sears has a crisis management command center it can activate in times of emergencies to coordinate all levels of store management on a regional level. “We have people representing all support functions like transportation, logistics, inventory, facilities, risk management and even legal and public relations,” Waldrop says. “You have a core team and have them all in one spot.”

Tailoring plans
While the fundamentals of emergency response are relatively uniform, Sears also has individual plans for specific types of disasters. Hurricanes call for shutters to be on the ready, along with sump pumps and pallets to raise merchandise at least three feet off the floor; stores in flood-prone areas typically have such supplies and assets in place year-round. For events like tornadoes and earthquakes, which strike with little or no advance warning, “the plan is about sheltering in place — where to go, how to hunker down and take care of customers and associates,” Waldrop says.

Target has developed a strong partnership with FEMA to support disaster recovery and increase communications between the public and private sectors. The company’s corporate command center operates 24/7, monitoring events and keeping close contact with company teams that can be deployed quickly and effectively in response to almost any situation.

“We have catastrophic flooding plans, hurricane plans, earthquake plans and we prepare for wildfires, too,” says Target spokesman Antoine LaFromboise.

Sometimes, LaRocca says, the best way to test a plan is to implement it during a smaller-scale event. An incident as minor as a power outage offers an opportunity to find out what works, what doesn’t and where changes need to be made. How a company responds to small storms, fires, supply chain interruptions and water outages can offer indications of how it will react to larger events.

An effective disaster recovery plan should also be flexible enough to react to unforeseen circumstances. Having an up-to-date employee contact list is essential because in many disasters staff may be scattered throughout the region — even evacuated to other cities. Cell phone transmissions can also become overwhelmed during such events, making it difficult to reach others. Having the ability to operate with a skeleton staff, to set up a temporary store in a tent or parking lot and manually process cash and credit card transactions should be included in such plans.

The Home Depot has learned through experience that staffing can be a major challenge in the face of a disaster: Employees may have lost their own homes and not have a place to stay. The company’s Homer Fund was created in 1999 as a nonprofit charity to specifically help associates, who are eligible to receive up to $10,000 for qualifying hardships.

Supported by donations from many of the company’s 300,000 associates, the Homer Fund has distributed more than $50 million through more than 45,000 grants. In the aftermath of a natural disaster, associates can use funds to get back on their feet or find a place to live if they’ve lost their home.