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Home Depot’s Christmas in April Imperiled by Port Strike

Home Depot Inc. (HD) and Lowe’s Cos. (LOW) have the most at stake among retailers facing a dockworkers’ strike, with possible port closings cutting off shipments right before the lucrative gardening season.

Home Depot, the biggest U.S. home-improvement chain, is making plans in case 15,000 workers at ports from Maine to Texas walk off the job, and Lowe’s said that it is monitoring the talks. About 45 percent of the commerce that flows in an out of the U.S. goes through East Coast ports, according to the National Retail Federation.

Retailers “would be hit far and wide from apparel to home goods to patio furniture to barbecues,” Jonathan Gold, the NRF’s vice president for supply chain and customs policy, said yesterday in a telephone interview from Washington. “It is a major concern. At this point, we don’t anticipate a settlement.”

The International Longshoremen’s Association has vowed to walk out if a deal isn’t reached before the Dec. 29 expiration of its contract with the U.S. Maritime Alliance, whose members include container-carrier companies. Talks broke down last week after nine months of negotiations. A strike would be the first at East Coast and Gulf Coast ports since 1977.

While most retailers have their biggest quarter around the year-end holidays, Home Depot may generate 28 percent of its annual revenue in the quarter ending in July as consumers stock up for home and garden projects, according to analysts surveyed by Bloomberg. Lowe’s may get 29 percent of its revenue in the period, analysts estimate.

‘Big Time’

“For Home Depot and Lowe’s, spring is a very big time for them,” David Strasser, an analyst at Janney Montgomery Scott LLC in New York, said in a phone interview. “They have their Christmas in April and May.”

Home Depot has contingency plans in the event of a strike, Stephen Holmes, a spokesman for the Atlanta-based company, said yesterday by e-mail, while declining to discuss those preparations. Lowe’s, based in Mooresville, North Carolina, is monitoring the situation and will make changes to its shipping and transportation if needed, Maureen Wallace, a spokeswoman, said in an e-mail.

Home Depot fell 0.6 percent to $60.47 at 9:49 a.m. in New York, and Lowe’s slid 0.3 percent to $34.80. Home Depot had risen 45 percent this year through yesterday, while Lowe’s had gained 38 percent.

A majority of clothing chains haven’t made plans for a strike just weeks before they’re expecting to receive spring merchandise, which hits shelves in February, said Tony Ward, a New York-based retail specialist at consulting firm Kurt Salmon.

Apparel Retailers

Retailers and apparel makers that have shifted orders from China, where wages are rising, to factories in Brazil, Costa Rica and other Latin American countries are particularly vulnerable because many of those goods enter the U.S. through East Coast ports, he said.

“Quite a bit of that product that retailers had planned to move through the East Coast is now challenged by the potential of a strike,” Ward said. “It is a very large concern for retailers that have a big spring season.”

Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT), the two largest U.S. discount chains, also may be hurt by a strike, said Georgia Ports Authority Executive Director Curtis Foltz, who oversees the Port of Savannah, the third busiest port for container cargo behind New York-New Jersey and Los Angeles-Long Beach.

“Their product won’t be unloaded off ships, nor will it be moving out of our facilities during any work stoppage,” he said in a phone interview.

David Tovar, a spokesman for Bentonville, Arkansas-based Wal-Mart, declined to comment.

Target Plan

Target is monitoring the situation and has a “well- defined” contingency plan, Jessica Deede, a spokeswoman for the Minneapolis-based company said in an e-mail, while declining to describe the plan.

The shutdown of ports from Maine to Texas would damage the “fragile” U.S. economy, already hurt by superstorm Sandy’s damage to the Port of New York and New Jersey and other northeastern U.S. shipping hubs, NRF President Matthew Shay told President Barack Obama in a letter last week. He urged the president to use “all means necessary,” including invoking emergency powers under the Taft-Hartley Act, to head off a strike.

An eight-day strike at the Port of Los Angeles and adjacent Port of Long Beach last month ended without presidential intervention.

‘A Harbinger’

“That’s a harbinger for what we can expect,” Strasser said. “My guess is it won’t be resolved by Saturday, but a week from now it will be.”

A port strike may cause some disruption to imports of frozen or refrigerated agricultural goods such as fruits, vegetables and fish, said Ken Shea, a Bloomberg Industries analyst in Skillman, New Jersey.

U.S. packaged-food makers don’t face “a significant near- term risk” because most of their goods are transported by trucks and trains, Shea said yesterday in an e-mail. The International Longshoremen’s Association said it would continue to handle containers of perishable items with a limited shelf life during a strike.

ConAgra Foods Inc. (CAG)’s shippers have committed to shifting its finished-food shipments to smaller ports, and the company has the option to use Canadian ports, Becky Niiya, a spokeswoman for the Omaha, Nebraska-based company, said in an e-mailed statement.

Consumer Demand

Retailers already are coping with consumers concerned about the potential tax increases and benefit cuts that would go into effect in January without action in Congress. U.S. holiday sales grew 0.7 percent from Oct. 28 through Dec. 24, slowing from 2 percent a year earlier, according to MasterCard Advisors SpendingPulse.

The Conference Board’s index of consumer sentiment fell to 65.1 from a revised 71.5 reading the prior month, figures from the New York-based private research group showed yesterday. The gauge was projected to fall to 70, according to the Bloomberg survey median.

The contract between the Longshoremen and the Maritime Alliance covers more than 14,500 jobs at ports the management group says handle 95 percent of container shipments from Maine to Texas. The two sides began in talks in late March and reached tentative agreements in July on issues involving new technology and union jurisdiction over work on chassis used for the containers.

Taft-Hartley

The remaining dispute centers on container royalty fees, or levies that supplement wages. The Federal Mediation and Conciliation Service, which has guided talks since September, organized a meeting between the two sides this week in an effort to salvage negotiations. All three parties declined to provide further details on the new talks.

If federal mediation fails, the only remaining tool in the government’s arsenal is Taft-Hartley, which empowers the president to intervene in strikes that are deemed national emergencies, said Phillip Wilson, president and general counsel at the Labor Relations Institute in Broken Arrow, Oklahoma.

President George W. Bush was the last president to invoke the act. In 2002, he ended a lockout that closed West Coast ports for 10 days.

That shutdown cost the U.S. economy $1 billion a day and resulted in supply-chain disruptions that lingered for more than six months, according to the NRF.

“The economy was in a much different place back in 2002,” Gold said. “It was much stronger. There’s no telling what kind of impact this would have on the economy.”

To contact the reporters on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net; Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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