Fires May Boost Retail in Southern California

If 2003 is any indication, brush fires could be good for retailers.

When the Cedar fire blackened 280,278 acres and gobbled up 2,232 homes near San Diego in late October that year, the following holiday retail season turned out to be one of the best in a decade. “You’ll see an enhanced holiday retail season. Unfortunately, it comes at the expense of homes,” said Scott Alevy, a spokesperson for the San Diego Regional Chamber of Commerce.

As firefighters put out the last flames of a rash of blazes that scorched nearly 500,000 acres and destroyed around 2,300 homes, Southern California faces huge losses.

Risk Management Solutions, a Newark, Calif.–based research group that measures catastrophic-insurance risk, believes the damage in Southern California will cost insurers more than $1.6 billion.

The San Diego Institute for Policy Research, a think tank, estimated the disaster could cost San Diego County alone, the hardest-hit region, more than $2 billion. However, this estimate included the cost of fire and police protection as well as lost business productivity.

For fire victims, the next step is rebuilding. If residents replace their furniture, clothing and other goods right away, that could give an unexpected boost to the holiday season, providing a bit of cheer to retailers expecting a less than spectacular year, said Jack Kyser, vice president and chief economist for the Los Angeles County Economic Development Corp.Kyser reported that rebuilding efforts sparked economic increases in Los Angeles after the 1992 riots and the 1994 Northridge earthquake.

The city of San Diego also has a track record of rebuilding after disasters.

While the Cedar fire of 2003 is considered one of the biggest single fires in California history, the recovery was aided by a very strong economy, said Rich Toscano, a San Diego financial advisor who works for Pacific Capital Associates.

“We had a raging real estate market, with everyone pulling on home equity to finance their retail spending,” he wrote in an e-mail interview.

This year the economy is weaker, Toscano said, and San Diego’s holiday season should be more influenced by macroeconomic trends such as a soft housing market than the fires.

Some believe retailers may have to wait until mid-2008 to see any economic benefit from the fires. That’s probably when many victims will finally get their insurance settlements.

But San Diego’s Fashion Valley shopping center didn’t have to look to the future to gauge the firestorm’s effects. An estimated 40 percent of stores at this shopping center closed Oct. 22–24 during the heaviest days of the fires. Retailers and their sales staff took time off to safeguard their residences or help friends and families protect their homes, according to Francine Miley, director of marketing for Fashion Valley.

However, mall attendance did not decrease during the fires, Miley said, because classes were canceled at colleges and K-12 schools. Many people came to the mall to find something to do and to take a break from the awful news headlines.

Macy’s briefly closed three of its San Diego– area stores on Oct. 23. To attract business and help the community, the department-store chain is offering a disaster-assistance program. If enrolled in the department store’s program, victims can take advantage of 15 percent discounts throughout the store, excluding jewelry and fragrances. They can also take advantage of deferred billing.

The offer will be good until May 1, 2008. To be enrolled in the program, disaster victims have to show Macy’s a Red Cross voucher, a completed insurance claim form or documentation from the Federal Emergency Management Agency. —Andrew Asch