The Industry Holds Strong in Katrina's Aftermath

Hurricane Katrina took its toll on the sporting goods industry, and its after-affects are expected to linger for a while. Power outages and structural damage from the wind and rain wreaked havoc on stores serving Alabama, Louisiana and Mississippi, while flooding and looting only added to the pain felt in New Orleans.

Many major sporting goods retailers suffered damages to stores located on the Gulf Coast.

• Foot Locker, which operates a number of stores in downtown New Orleans, reports that approximately 90 doors were closed as a result of damage caused by the storm.

• Between 50 to 60 of Hibbett Sporting Goods' 508 stores were impacted to varying degrees, with sales interruptions related to power outages. Hibbett lost three stores, and an additional seven were forced to close temporarily. One of those badly damaged stores was expected to re-open within six to eight weeks.

• The Sports Authority was forced to temporarily close three stores in Louisiana, affecting 60 employees.

• The Finish Line had 12 stores affected by power outages, structural damage and looting.

• Fifteen Shoe Carnival locations were affected to some degree.

• Four West Marine stores were destroyed, and an additional nine were damaged.

West Marine was forced to cut its earnings as a result of the hurricane damage as well as rising fuel prices, but most other major retailers believe the hurricane will have minimal impact on business, and are now assessing the terms of property and business interruption coverage with insurance brokers.

Academy Sports & Outdoors, along with Shoe Show and The Athlete's Foot, also have a presence in the ravaged Gulf Coast. Obviously, a number of independent dealers—including countless hunting and fishing shops, which are pervasive in the area—were also impacted.

Puglia's Sporting Goods, located in Metairie, LA, suffered some wind damage and was forced to close for a few weeks, but owner Tony Puglia remains upbeat. "We'll survive," he states. "For us, a lot of our customers are from up in Northern Louisiana, which wasn't affected at all."

But Mike Massey, owner of Massey's Professional Outfitters, whose store and headquarters in Metairie, LA, was flooded, is particularly concerned about the plight of New Orleans, where many of his customers operate restaurants and other businesses. "We're two steps down," says Massey. "We rely on tourist traffic to put money into the pockets of our customers."

Indeed, the biggest worry is the recovery of New Orleans, where many merchants lost businesses, and everything from lack of electricity and drinking water to curfews are restraining the efforts of those looking to rebuild.

"People are walking around and saying it's going to come back even better, and there's all this money coming in, but it's probably going to take a while," says Massey. He adds that while he expects to do "okay" in apparel and footwear, categories such as backpacking and skiing have become a tougher sell.

"One of my employees came in with 2" of mud caked on his shoes and it came from his house. So I don't see people camping too much," Massey observes.

Some vendors were particularly hurt by the disruption to ports caused by the storm. For instance, Russell Corp. was extremely hard-hit, reporting that 40 containers of product were lost or damaged when Hurricane Katrina hit Gulfport, MS. The port had been the company's primary point of entry for finished goods and for shipment of fabric and cut parts for products assembled in owned or contracted operations in Central America, the Caribbean and the Yucatan peninsula of Mexico.

Aside from the lost and damaged goods at the port, Russell incurred substantially higher costs in shipping to other ports, including Miami. Also, polyester fiber manufacturers declared a "Force Majeure" due to the hurricane, effectively nullifying contracts and resulting in about a 20 percent increase in the cost of polyester fiber, Russell notes.

Jack Ward, Russell's CEO, says the company is "evaluating the degree to which many of these additional Katrina-related costs are temporary, and those which may result in longer-term cost increases."

The long-term economic impact of Hurricane Katrina will hinge in large part on how U.S. consumers react to the disaster and the resulting surge in gas prices.

In earnings warnings to Wall Street, both West Marine and Brunswick cite higher fuel prices and reduced boating activity nationwide related to Katrina. The industry will also be impacted by higher transportation and shipping costs. The major concern for the economy is how consumers will be affected by higher fuel prices, as well as by significantly higher heating bills this winter. A decline in new home prices, a rising tax burden, and slow job growth are also contributing to a cloudier outlook for consumer spending for the rest of the year.

"Retailers face hurdles in the coming months," comments Carl Steidtmann, chief economist of Deloitte Research. "A natural disaster of this magnitude will almost certainly have a negative impact on consumer spending in the short run, and will likely hurt some retail segments during the upcoming Holiday season."

—THOMAS J. RYAN