Gulf Coast distributors now have the experience to prepare for the next "big one."
Scott Armstrong, president of Armstrong's Supply Co. Inc., New Orleans, is a perpetual optimist. Not even Hurricane Katrina and the physical destruction of his business's headquarters robbed Armstrong of his ability to always see the glass half full.
Michael de la Houssaye, an independent rep with C&D Agency, Covington, La., had his home completely destroyed by Katrina, but he is quick to say that the destruction for so many other people was far worse.
As compelling as their stories are, Armstrong and de la Houssaye are just two of many Gulf-Coast players in the electrical-distribution industry who have been working to re-establish their businesses — and their personal lives — in the months since Hurricanes Katrina and Rita unleashed their fury on the Gulf Coast last year. For these electrical distributors and reps, business has been booming in recent months, but it has been extremely challenging to keep up with heavy losses, long lead times and staffing issues.
In addition to day-to-day business, Gulf Coast electrical wholesalers must also be prepared for the 2006 hurricane season, which is now upon them and has the potential to be just as devastating. From last year's hurricanes, distributors have learned what was effective in their response to disaster and what they need to rethink to prepare for the next big storm.
Chronicled in The Wall Street Journal, the post-Katrina odyssey of Armstrong and his company made national headlines. Through it all, his determination to stay in business has become abundantly clear.
When Armstrong was finally able to get to back into his New Orleans headquarters to assess the damage to the building two weeks after the hurricane's Aug. 29 landfall, he was prepared to find no salvageable inventory. Although everything below the flood line was completely destroyed, he was pleased to find the shell of the building still intact.
“It really didn't get me all that down or depressed. I looked at it, and I said, ‘I can fix this in some kind of way,’” Armstrong said.
So that's exactly what he set out to do. Today, Armstrong still doesn't know the total dollar value of his loss because he has yet to finalize reconstruction plans, but he knows it will exceed insurance coverage. In addition, it has been difficult to compute total inventory loss because some of his product was so badly damaged and unrecognizable that the only way to determine what was lost was not by keeping track of what they threw away but by making a list of what remained and subtracting that from the company's pre-Katrina inventory.
In order to compensate for a shortfall in insurance coverage, the future of the hardware segment of his business is in jeopardy, and he has yet to replace any lost lighting inventory.
“Instead of returning the building to 100 percent of where it once may have been, we may cut back on the quality and/or the depth of build-out plan and save money there. We have been very conservative about replacing our lost inventory,” Armstrong said.
Last August, before Katrina hit, Armstrong was in the midst of developing a disaster plan but had not completed it. The impromptu disaster recovery he implemented has involved restructuring the company. Before Katrina, Armstrong's Supply Co. had two locations — the headquarters in New Orleans and a branch in Mandeville, La. He moved the company's headquarters to Mandeville and opened a new location in Jefferson Parish, which he plans to keep as a permanent branch.
To get the New Orleans branch up and running, Armstrong rented a job-site trailer and cleaned out about 5,000 square feet of a warehouse. In addition, he is getting ready to expand his Mandeville branch by adding additional lease space. Now there is the question of how the original headquarters is going to be rebuilt.
“Less people, but more locations,” Armstrong said. “Not usually the blueprint for success, but we are making it work.”
Keeping the company financially stable in the immediate aftermath of the storm was a tremendous worry for Armstrong. “Our vendors really supported us by deferring our debt to a later date or by increasing our credit limit,” he said. “I do know if another event like this takes place, the first people I will turn to are our suppliers.”
Armstrong is now able to breathe a bit easier about the financial condition of his company. Revenue is up almost 40 percent, even without the hardware and lighting side of his business, which used to comprise 20 percent of revenue.
“We've recovered our revenues much more quickly than I anticipated we would,” he said. “We haven't had mass failures with customers that have caused us to have any receivables problems.”
But while business is strong, Armstrong is worried about deeper issues.
“I'm concerned about burnout, and I'm concerned about exhaustion,” he said. “And not just with our staff, but with our customers as well. I see small contractors who used to have five or six helpers who are now doing it all on their own because it's hard to find help, and they have more work.”
Keeping up with the “Gangbuster” Speed of Business
Electrical Wholesaling announced in October that a special fund was being set up to help the family of Michael de la Houssaye after his home was destroyed by Katrina. De la Houssaye works for his father, Jean Paul, to run C&D Agency. Thanks to help from manufacturers and others, de la Houssaye was able to get the help he needed quickly, and the relief fund was no longer necessary.
“My manufacturers really stepped up. Most of them helped me out to get me through those first six weeks,” de la Houssaye said.
About two months after the hurricane, de la Houssaye along with his wife and three children were able to move into another home. The office of C&D was originally in de la Houssaye's father's home, but they have now moved to another location to keep rebuilding and clean-up distractions to a minimum. Although Jean Paul's home survived the storm, his property took an extreme beating. The home is in a wooded area, and massive amounts of fallen trees rendered the area impassable.
On the business side, de la Houssaye was able to reestablish communication with his clients via e-mail, and the workload and revenue has been growing ever since.
“We're operating better than I think we were before the hurricane. We're more efficient,” de la Houssaye said.
This efficiency comes from going completely paperless in the areas of communications and processing of orders. In addition, the father/son team is now focusing on selling more generators.
De la Houssaye said business in Covington is booming because many former residents of New Orleans have moved to the surrounding areas. He estimated that C&D had its best month yet in May. “In the electrical business, everybody is gangbuster busy,” he said.
Despite great revenue, the challenges of operating an electrical business in the New Orleans area are numerous. De la Houssaye said it's harder to introduce new products to the market now when he goes to a distributor. “The distributors just haven't had the time to make those casual sales calls and luncheons or look at new lines,” he said.
Last fall, the ability of distributors to react quickly was essential in supplying products to rebuild the electrical infrastructure on the coast. Member companies of the North American Association of Utility Distributors (NAAUD), Lady Lake, Fla., drew from materials provided by other member companies across the country in the immediate aftermath of the storm.
“We got products from all over the United States from supporting NAAUD members,” said Eddie Moak, NAAUD president and vice president of utility operations for Stuart C. Irby Co., Jackson, Miss.
Linda Coker, executive director of the NAAUD, said this was a tremendous help to distributors, and the association has not made significant changes to the program because it worked well in the aftermath of last year's hurricanes. Moak said the NAAUD has not done much in terms of recovery in recent months, because they haven't been called upon.
One of the biggest responsibilities electrical distributors had in the wake of the hurricanes last year was to supply the power companies in affected areas. Tri-State Utility Products Inc., Marietta, Ga., helps supply Alabama Power, Mississippi Power and Gulf Power. When Katrina hit, Tri-State was still working to get back to normal from the damage of Hurricane Ivan, which hit the Gulf Coast in September 2004. Mike Martin, a sales rep for Tri-State, said this made responding to another major hurricane especially challenging.
One of the many problems for Tri-State was obtaining fuel in the immediate aftermath of Katrina, said Martin. Tri-State ended up relying on the utility companies in some instances to provide needed fuel. Obtaining fuel also challenged the Stuart C. Irby Co., which had never needed an alternative fuel supply when responding to previous disasters. Getting truck lines that would deliver product to the devastated area was also extremely difficult.
Another equally frustrating challenge for distributors, which they say has only become worse in recent months, is long lead times that don't seem like they are going to decrease any time soon.
“The high demand from the storm depleted inventories, and the robust economy right now is placing a big demand on the available products,” Moak said.
Products such as transformers, wire and cable, anchors and many steel-related products are especially difficult to obtain quickly.
“You can stage material for emergencies, but then once that emergency inventory is gone, then it becomes, ‘What is the capacity of the manufacturers and supply chain to continue to provide the material?’ And that really got stretched,” said Don Thimjon, vice president of WESCO Distribution's utility operations.
Even so, Thimjon said WESCO, with headquarters in Pittsburgh and approximately 300 U.S. locations, has been able to keep their Gulf Coast customers, primarily Entergy Corp., Cleco Corp. and public power customers, fully supplied.
“We have really good relationships with our key suppliers,” Thimjon said. “WESCO has a national footprint as far as multiple locations throughout the country, so we have been able to draw materials from other areas to help with the whole process.”
Staffing is also a problem, because much of the former work force fled the area and has yet to return. Because businesses throughout the Gulf Coast are struggling to maintain staff, wages are going up at unprecedented rates to attract the able-bodied employees still in the area. Armstrong said even fast-food jobs in New Orleans pay twice what they used to. And in the midst of staffing challenges, Armstrong has a larger customer load than he had before the storm. It comes not in terms of more individual customers but instead with fewer customers buying in larger bulk.
Tragedy Brings Change
This year, Tri-State is being more proactive, Martin said. Tri-State has put together a list of items needed in a storm kit, and the company has compiled a spreadsheet with the commodity numbers of these items for the utility companies they work with. The goal is to make sure utility companies are ready in the event of an emergency and to prepare manufacturers to supply the utility companies in a time-efficient manner.
“Every time there is a major storm like that, we make mistakes. You are having to make split-second decisions. The more you do it, the better you get. The main thing is to always be available,” Martin said.
Although both Tri-State and the utility-company customers they work with are currently stocked with enough materials to satisfy the needs of a major hurricane, Martin expressed doubt about enough resources being available fast enough in the event of two major hurricanes back-to-back this season.
“For me to go to the Gulf Coast of Mississippi — between Biloxi and Gulfport and west of there to Waveland — is so depressing,” Martin said. “The utility infrastructure has been rebuilt, but there are just no buildings there at all.”
Moak said Stuart C. Irby is now planning better with all of their customers in the affected areas, which involves identifying critical items and needs, updating and maintaining an emergency-contact list and providing storm trailers stocked with inventory for customers. He also said his company is working toward better planning, additional inventories and better communication channels this year.
Overall, Moak stressed that having a plan in place is critical, even if the plan isn't perfect, because a distributor has to have a point from which to start the recovery process.
To supply the needs of homeowners and small commercial construction and to help rebuild the costal area, Stuart C. Irby has opened two new stores since last year's storm called Irby Electric Express, in Gulfport, Miss., and Waveland, Miss. Several branches of Irby Electric Express already existed in Florida. Their success in Florida made it clear that the concept was effective and could easily be implemented in other locations.
Thimjon said WESCO has prepositioned some inventory and started to hold conference calls with its Gulf Coast management team and key manufacturers to make sure WESCO is prepared for the current hurricane season.
Although distributors agree the electrical infrastructure is functioning again, they also believe the hastily re-erected electrical infrastructure needs an extra boost of stability.
“The power system is fairly stable at this point. There's got to be a lot of clean-up done to the systems that were rebuilt because they were rebuilt at such a fast pace just to get the power back on,” Moak said.
Still, the hastily rebuilt electrical infrastructure maybe more vulnerable should another big storm hit this season.
Where to go from here
The good news emerging from efforts over the past year is distributors are doing more than ever before to brace themselves — and their customers — for the worst. Yet the Gulf Coast distribution industry's future remains uncertain.
In a speech given at the Industrial Supply Association Annual Meeting by Lee Eagan, CEO of Oliver H. Van Horn Co., New Orleans, and published in Modern Distribution Management newsletter, Boulder, Colo., Eagan, an industrial distributor, said Katrina eliminated 50 percent of the barrier island system and wetlands that protect Louisiana, Mississippi and Texas.
Each 2.7 miles of wetlands reduce the storm surge by a foot. With half of this barrier gone, a 2006 Category 2 storm could create as much devastation as a 2005 Category 3 storm. With this information in mind, it's frightening to think about what the current hurricane season has the potential to do.
While most distributors and utility companies seem to be recovering well, some are not. Eagan also said in his speech that his utility provider has gone bankrupt, and with the loss of 50 percent to 60 percent of the utility's customer base, they are raising rates as much as 2.6 times in order to spread the costs over fewer customers.
These facts, combined with Martin's fear of two consecutive “big ones” have distributors holding their breath hoping that Mother Nature will be kinder this year.
Allison Sebolt graduated in May with a journalism degree from the University of Missouri-Columbia. Sebolt spent several days this past March gutting houses in the Ninth Ward and surrounding areas of New Orleans with Campus Crusade for Christ. She is the editorial intern for Electrical Wholesaling this summer.
Tips to Prepare for Potential Disaster
A disaster plan is not just something companies along the Gulf Coast need to consider. Whether due to a hurricane, tornado, earthquake or fire, tragedy can strike anywhere at any time. Here are some practical steps you can take to be prepared.
Move your server off-site
Even before Katrina made landfall, Scott Armstrong, Armstrong's Supply Co. Inc., New Orleans, had a duplicate computer system stored up high in his headquarters in case of a disaster such as flooding. Yet when he couldn't get into the building to retrieve the extra system, it didn't do his company any good. He is now working to get his server duplicated off-site in another region. This would allow his company to still function in the event of power loss or site destruction.
C&D Agency, Covington, La., isn't risking it anymore with easily destroyed paper files and could now easily operate from another location.
Establish alternate communication channels
Phone service — both cell and land-line — might cease to exist in the event of an emergency. Consider alternatives such as two-way talk radios and satellite phones. Make sure you are in control of your communication methods and are not relying on another company.
Have a backup fuel-supply system
Several distributors said they didn't expect to run out of fuel when they sent trucks into the devastated areas. In the midst of any kind of disaster, it's important to have the means to transport materials and travel.
Secure your funds
Your bank might get wiped out, and though your bank is insured, it will take time to reclaim and receive your money. Consider banking with institutions that have branches outside your primary region to access funds immediately after a storm.
Develop a “storm kit” list
Tri-State Utility Products Inc., Marietta, Ga., is currently helping its utility company customers restock their storm kits, and the distribution company is preparing to stock materials for more storm kits if another disaster strikes.
Invest in a support organization to take care of employees
It's going to be difficult for employees to return to work before they ensure their families are safe and have their basic needs met.
Brace yourself for damages to exceed insurance coverage
Even though the final numbers have yet to be crunched, Armstrong knew he was going to have to restructure his business to accommodate for a shortfall in the total amount of money he will receive from his insurance. Talk with your insurance provider about your coverage.
Connect with manufacturers and other distributors throughout the country
Distributors in other regions of the country not affected by the same disaster will have the resources and ability to help.