Retail's Woes Point to Local Gold?

Okay, folks would probably suspect that I'd want to talk about the recent earthquake in Reno that caused a sewer-treatment-plant-damaging rock fall. (Remember, you don't need big earthquakes to cause big problems!) True, true: Renoites (Renoans?) need to be cognizant of their earthquake hazard and get prepared, as the seismologists and emergency managers are saying.

But us resilience researchers, we get excited about subtler things.

Like retail.

I've been wanting to write about retail for a couple weeks now. There have been a lot of numbers coming out showing that retail is struggling right now, with sales down and bankruptcies up.

At some level, bankruptcy is a normal part of the economic cycle. But when a lot of businesses start going under or having to drastically reorganize, I'm starting to wonder about the resilience of the system.

But we're in a recession. (Aren't we?!) You'd expect that if the dominant discourse is that our country and, noting global food prices, the world is in an economic slump, then people would change their buying behavior. This I think is not too dissimilar to how attitudes and priorities would shift in the weeks and months and maybe years after a significant hazard event, such as an earthquake.

Well, maybe, maybe not. According the New York Times, take a look at the changes in consumer purchases during our current GDP stalling:

In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago...

Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.

...

Not even beer is immune. Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.

...

By no means has the economic downturn been bad for all product categories. For instance, sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms.

Uh.

Okay.

So apparently when Americans are having to "tighten the belt" they need about as much or more as usual on "luxury goods," airline tickets, flat screen TVs, and video games.

I'm not so sure though. Those sales statistics are based on total receipts, not number of purchases. So while clothing and furniture and food sales may be "down," the demand and, I suspect, the number of transactions (in some form, such as repurposing or remodeling a piece of furniture), is not.

What this data is talking to me about is people's attitudes about substitutes -- how flexible they are in what they buy for a particular need or want.

Airline tickets, flat screen TVs, and video games? Well, there is not enough flexibility in preferences to provide significantly cheaper substitutes.

Food, clothing, and furniture? There is. The Keebler Elves and the Budweiser Clydesdales are really not that important to people, as long as their need is met for a reasonable price (or there is some other incentive).

Where am I going with this, you ask?

Import substitution and replacement.

Wuh?

Import substitution/replacement is a strategy for increasing community resilience by decreasing reliance on importing goods (and services) into the community. The (arguable?) potential benefits are many, including reduced monetary and environmental costs of transportation, increased local multiplier effect (i.e., dollars spent stay inside the community), insurance against failed systems outside of the community (of which the community has little or no control), and higher wages (shifting emphasis of an economy from retail to wholesale and manufacturing/processing).

These data that the New York Times are writing about show me where there is potential for import substitution/replacement: day-to-day needs. Food, clothing, shelter (including furniture) -- these are items that people apparently are not picky about who produces them and where they come from.

In other words, in implementing a strategy of import substitution/replacement to increase community resilience, these are the areas that a community should develop first. (Energy would be another category, as often promoted in the green power movement.)

And when should a community attempt to push an import substitution/replacement strategy? Well, obviously times like now would be good, when consumers are looking for convenient, lower-cost alternatives.

Or perhaps, in the recovery phase of a major disaster. Hmm....

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businesses in Centralia and Chehalis

Over the last week, I have been talking with local business association leaders and economic development officers in Chehalis and Centralia, two towns heavily impacted in the December flooding that closed Interstate 5 for 4 days.

Concerns are starting to mount. Directly after the flood waters receded, local businesses were able to gut and clean out their businesses. Many of them had a flood of support from friends, families, and even their clients. This represents the best of what small towns and dense social networks have to offer. It offered bright hopes of recovery for local businesses.

Two and a half months after the flood, association leaders and the economic development officers say that things are bleaker. Taxes are being filed and bills are coming in. Many younger businesses cannot apply for SBA loans. Others are concerned about getting further into debt. The downtown business association president says most businesses are reporting a loss of sales of about 35% for the 2007 year. This area was not hit by the flood directly. But with many local clients devastated by the flood, Christmas sales were minimal. Others didn't come shopping in the city, assuming everything was closed. A few businesses are closing.

There is also a need to retain manufacturing and outwardly oriented businesses. Businesses that have a non-local client base may find that it is easier to start over in a less risky location. A location that hasn't had 3 floods in the last 17 years...

The towns are struggling, as all cities do after a disaster. IGCR is going to be working with them to survey the businesses. We all want to try and learn what policies, incentives, education or support would help these cities bounce back from this event. The goal, however, needs to be bouncing back in a way that reduces future flood risks. Like elsewhere in the world, disasters wipe out (unsustainable) development. These events also undermine the resources a city has for moving towards sustainable planning and development.

Getting out of that negative feedback loop is going to be Centralia and Chehalis' grand challenge in the years ahead.

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Make a recovery plan....or not

I recently read a short article in Disasters by David T. Flynn entitled The Impact of Disasters on Small Business Disaster Planning.

Interestingly, Flynn's research suggests that businesses that have experienced disasters may be less likely to create a plan than those who only watch others misfortunes. In a survey of businesses that had experienced the 1997 severe flooding of Grand Forks, ND, and those that started operation after the flood, he found just the opposite. For the group that experienced the flood, having a disaster recovery plan went from about 5% before the flood to about 11% after the flood. But, businesses that started after the flood had double this rate, 24%, a significant difference.

Flynn offers no suggestions for why this may be.

Did the businesses that experienced this extreme flooding event decide that they had survived and could do so again? Did they reap the benefits of federal disaster aid and see no need for such plans? Is there something in the way the surviving businesses operate that is inherently resilient and already incorporating disaster recovery planning concepts? Was the flooding so catastrophic that those who experienced now believe that no plan would have made any difference? And what of the businesses who came along afterward. Are painful lessons easier to incorporate when you see them happen to someone else?

It is generally assumed that disaster recovery plans help business deal with disruptions and more quickly recover from disasters and help reduce their financial losses. Flynn's research and the prospect of looking into small business damage and recovery to flooding here in Washington State has got me pondering all this. Perhaps disaster recovery plans are not useful in the way disaster professionals promote .... and these Grand Forks businesses have figured it out. This definitely calls for some qualitative research.

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Is Safeway the Safe Way?

Rebekah and I went to the Pacific NorthWest Economic Region's Critical Infrastructure Resilience Summit today.

It was a stat-filled day about various aspects of the Pacific Northwest's critical infrastructure. I learned things like how many automobile bridges we have in Washington State (2900), the average age of our bridges, (41 years), and how many bridges are structurally deficient (82...though I was unclear if that included the Hood Canal, Evergreen Point, and Alaskan Way Viaduct bridges). I learned that 80-85% of critical infrastructure is privately owned (a US figure). I heard that it took around 8 hours for the city of Centralia to reroute wayward cars and frieght out of their downtown after I-5 was shut down by flooding....

But my favorite bunch of stats given are about Safeway and their just-in-time (JIT) inventory system. This is what I had time to jot down:

• The majority of products delivered to the stores are from outside the PNWER region
  
• Every store receives 2 deliveries a day on a 12 hour cycle
  
• 120-150 trucks make deliveries in a day
  
• Deliveries are made 6 days a week
  
• Around 1.2 to 3.2 miliion pounds of food are delivered to stores a day
  
• 90% of trucks are on the road (i.e., not at the store or distribution center) at any one time
  
• There is no communication system on board the trucks to link them to distribution centers
  
• Alaska and Hawaii get deliveries from the Auburn, WA distribution center
  
• Their most critical infrastructure (in rough order) is:
  
  1. Transportation
     
  2. Fuel links
     
  3. Electricity
     
  4. Telecommunications
     
  5. Water
  
  
• Each distribution center has no more than 3 days of fuel on site
  
• A fork lift battery will last 12 to 24 hours without needing to be recharged
  
• Water is required to operate the compressors of the refrigeration systems

At the end of the session, they had us write our questions on a card and hand it up to the moderator for asking. My question never got asked:

Assuming JIT, wasn't invented/designed to be disaster resilient, what would a distribution system look like that was?
What did the distribution system of Safeway look 50 years ago and how did it perform in past disasters?

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