Disaster Planning for Retailers: Five Considerations to Think About Now

Does your company have a disaster plan in place? If not, you should.  As we saw earlier this year with the earthquake and tsunami in Japan, the U.S. retail industry was severely impacted due to disruptions at properties overseas.

In the U.S., retail businesses face increased risk from Atlantic hurricane season, which may be worse than expected this year according to a recent update from the National Oceanic and Atmospheric Administration. As we write this, Hurricane Irene is set to travel up from the eastern Florida coast and make landfall in South Carolina.

Retailers face an added layer of complexity when it comes to disaster planning as they must consider how damage to several properties could affect their revenues. These include suppliers, manufacturers, stores, distribution centers and even the transportation routes for ships and ground transportation.

Preparing early can help minimize financial losses due to a catastrophic event, which we saw from a few savvy retailers affected by tornadoes earlier this year. Below are five steps retailers can take to ensure they’re as prepared as possible for a catastrophe:
  1. Create a disaster recovery plan that assesses your human and structural assets on a location by location basis. Conceive and document it well in advance of a loss.
  2. Conduct a “vulnerability analysis” to evaluate potential disruptions to your retail business and how likely they are to occur. Consider your suppliers’ locations, how they travel to and from your store, the volume of sales based on e-commerce vs. in-store sales, what feeder properties may be affected near coastlines.
  3. Identify centralized leadership with local, national and global coordination, as necessary. More than an organizational chart, this is a plan with defined roles that should be practiced several times before a catastrophe strikes so that it can be seamlessly executed.
  4. Establish an internal and external team of experts that gives you a variety of resources if a loss event occurs. This team might include remediation experts, forensic accountants, and specialty vendors to evaluate damage to products/inventory.
  5. Know your insurance policy. Review your policy with your broker or a consultant as to proper coverage for the items mentioned above, as well as maximum limits, deductibles, exclusions, code upgrades, extensions of coverage and replacements costs.

Unless they plan ahead, retailers risk scrambling during the recovery period and can potentially miss out on indemnification for some losses. For more disaster prep tips, please check out our mid-hurricane season update here.