October 31, 2005, 12:00 AM

Beating the Storm

With Katrina and 9-11 etched in mind, merchants learn to plan for the worst.

By Paul Demery

When Hurricane Katrina hit Louisiana Aug. 29, sending wind, waves and refugees into his Baton Rouge community, retailer Robert Hackley found out how lucky he was. Over the course of the subsequent month, his ShoppersChoice.com lost about $500,000 in business, halting a steady tide of 30% monthly growth, while his phone system was mostly down and valuable employees were unable to get to work.

But it could have been worse, Hackley says. The eye of Katrina came ashore at a point that spared--just barely--ShoppersChoice from the worst of the -category 4 -hurricane`s 140 mile-per-hour winds. Had the hurricane`s eye been a little to the west, it would have caused the strongest and most devastating winds, those on the eastern edge of Katrina, to slam into Baton Rouge and cause extensive damage. "If that hurricane had stayed 20 miles to the west a little longer, it would have wiped us out," says Hackley, founder and CEO of ShoppersChoice.com LLC.

But while ShoppersChoice got a lucky break from what could have been a devastating hit, Katrina came close enough and caused enough problems to serve as a wakeup call to the retailer as it moves ahead with plans for rapid growth over the next few years. With 60 specialty retail sites including BBQGuys.com and The Grill Store and More, the -company is planning a major expansion of ShoppersChoice.com as a mass merchant, growing total SKUs from 1 million to 10 million in the first half of next year, Hackley says.

But those growth plans now include disaster -recovery as a major ingredient. "We didn`t have a -disaster recovery plan before Katrina, but we`re -working on one now," he says.

Katrina woke up ShoppersChoice as well as other e-retailers at a time when the -rising volume of retail e-commerce underscores the importance of -business continuity in the face of disasters, whether it`s -hurricanes in the Southeast, forest fires and earthquakes in the West, or heavy rain and flooding in the Midwest or Northeast.

Void in emergency planning

No longer an industry dominated by boutiques, online brochures, or start-up web properties with long-term sales potential, online retailing has massed the kind of volume that has turned retail e-commerce web sites into assets as valuable--and as worthy of -protection--as physical stores. Indeed, as many multi-channel retailers trim their poorly performing stores from their chains, the value of the e-commerce site as a steady, 24/7 means of serving customers rises even further.

Despite the growing importance of online activity to overall retail sales, however, many retailers are not prepared to deal with emergencies that could cause major disruptions to their businesses, experts say. It`s not that retail executives are unaware of the importance of disaster recovery and business continuity--concern about that issue has become far more common since the terror attacks of Sept. 11, 2001. Rather, the void in emergency planning stems from limited resources and the fact that it`s difficult to place a priority on what type of emergency to plan for. "After Sept. 11, retailers who didn`t have any kind of disaster recovery plan -realized they needed one," says Sunita Gupta, executive vice president of retail consultants LakeWest Group in Cleveland. "Now after Katrina, we`re really seeing a big change in -companies trying to figure out how to plan for disasters."

Setting priorities

But while most retailers have taken at least some steps to make sure they can survive a disaster and continue operating--such as backing up -customer data to off-site -computers--many simply don`t have the infrastructure, like multiple warehouses and back-up contact centers, to protect and assure continuity of all aspects of their business, experts say. "Most retailers under $500 million don`t have multiple distribution centers, even if they`re serving multiple channels," Gupta says. "So the question is: What is the back-up plan for those companies?"

Sometimes it takes a first direct experience with a disaster to help a retailer set priorities. At ShoppersChoice, for example, outsourced warehouse space intended to add capacity to handle peak business periods is now part of a back-up disaster recovery/business continuity plan, Hackley says.

ShoppersChoice maintains its office and warehouse space in two buildings in Baton Rouge, but earlier this year it decided to contract for outsourced warehouse space in Dallas, where it coincidentally also maintains the web servers on which its sites operate. "We`re growing so fast, we needed more space," Hackley says. "But instead of constructing a new warehouse building, it was more cost-effective to go with an outsourced bonded fulfillment center."

After Katrina hit, however, Hackley realized that the outsourced warehouse would serve a dual role, backing up fulfillment in case of disaster as well as for peak -shopping periods. "Most fulfillment will still be in Baton Rouge, but we could switch all of it to Dallas if we had to," he says.

Maintaining such contingency plans imposes additional costs, since ShoppersChoice would have to arrange for -suppliers to ship products to Dallas, finance additional inventory and pay outsourced fulfillment costs while continuing to pay regular employees. But maintaining -customer relationships is worth the cost and trouble, he says.

Re-routing

Indeed, most retailers should make arrangements with -suppliers to be ready to ship to alternate warehouses or to drop-ship to -customers or to stores if their warehouses become unavailable, Gupta advises. "If retailers don`t have a backup plan for their own warehouses, they need to plan to route products from vendors directly to stores or to customers," she says.

One of the immediate concerns for online retailers operating during and after disasters is simply maintaining communications with customers to let them know the status of existing orders and if and when they can place new orders, in addition to maintaining marketing communications, experts say. "Our biggest hurdle in the two-hurricane month was communication," says Tom Cox, founder and CEO of Golfballs.com Inc., based in Lafayette, La., about 100 miles west of New Orleans.

Bunkered

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