Duane syndrome

Some chain drug store and mass market retailers, concerned that their import buyers might be vulnerable to severe acute respiratory syndrome infection if they travel overseas to source seasonal and general merchandise products, are canceling buying trips through the foreseeable future. Chains also are developing contingency plans in case the disease continues to spread as the year goes on.

Although several retail sources said they are not immediately concerned about SARS because they currently are able to acquire almost all the imported goods they need from American-based third party importers, there is some anxiety that the pipeline for third party importers could dry up if epidemic is not curtailed before fall.

Several sources said the disease, which as of May 9 had killed 513 people, or 7.2 percent of the 7,183 people infected, according to the World Health Organization, could have a serious negative impact on seasonal sales during the upcoming holidays if the epidemic isn't checked within the next few months.

China and other Asian countries are a major source for many core general merchandise products, including toys, electronics, giftware and seasonal items.

Considering the importance of these products, Drew All-bright of Alliance Consulting said, "The fact is that most retailers will change the buying patterns and find ways to work around it. The demand will continue; it's the process that will likely change."

SARS so far has caused several large retail chains, including Wal-Mart and Walgreens, to cancel plans to send import buyers to infected hot spots, such as Hong Kong and Beijing, and at press time, a source for Rite Aid said the chain was leaning toward canceling a buying trip to China scheduled for ear next month.

Bill Wertz, a spokesman for Wal-Mart, possibly the largest retail importer of products in the United States, said that as of April, the chain has canceled all unnecessary travel, meaning virtually all travel to ports in Hong on, Beijing, Singapore, Vietnam and Toronto.

The company also has asked anyone coming to Wal-Mart from any of those areas to "observe a 10-day observation period before coming to one of our locations," Wertz said. "We are doing a lot more teleconferencing and video conferencing, and so far we're managing to cope. We haven't seen any negative impact on our import program at this time."

He said Wal-Mart is looking at the changes being instituted because of SARS as "an opportunity to examine some of our ravel practices. Maybe afterward, we will conclude that we don't have to do as much traveling as we thought we did."

However, on a more somber note, Wertz said that "if this persists and becomes chronic, we may have to p put some long-term plans in place."

Imported products, he noted, are a growing part of Wal-Mart's merchandising program. "Wherever we operate, we try to identify products that we can sell in other locations. We are moving toward a global exchange of merchandise."

Michael Polzin, a Walgreens spokesman, said Walgreens, an aggressive importer of seasonal and general merchandise products, has canceled one buying trip so far and still may cancel others if the disease is not brought under control.

"A lot of the companies we work with have offices here, so we can work around it," Polzin said. "At this point, I really don't see it having an effect on our programs. We can compensate by going to the offices of trading companies here and by getting information via computers or telephones."

Other chains don't see the disease as an immediate threat. "We don't go on buying trips until the end of the year, so we're safe for a while," said Richard Cognetti, president and chief executive officer of Kinney Drugs. "If the situation gets worse, then it could be a problem. We'd probably go back to the big importers rather than buying direct."

Cognetti said if the chain were to cancel its buying trips for the year, there could be some negative implications. "We'd probably have less margins. Probably our variety would be a little less."

Edward Frisch, president of the Chain Drug Consortium, a buying group representing nine regional drug chains, including Kerr Drug and Duane Reade, said it has begun to discuss contingency plans.

"We're making an effort to minimize any potential disruptions to our sourcing. We're looking at various contingency plans. But I've got my fingers crossed that the issue will be under control by the time we're scheduled to make our next trip in mid-October."

For many retail chains that do a lot of self-importing, the alternative to going overseas to source product is to go to trade shows and to the showrooms of third party importers like Atico International U.S.A., one of the industry's largest importers and product distributors.

Gene Bailey, group vice president of sales for Atico, said SARS' impact on retail so far has been minimal and limited to retailers "reconsidering when they'll go to [Asia] and what their alternatives are."

Atico, which has relationships with major retailers an d long-time importers, such as Walgreens, CVS, Eckerd, Rite Aid, Safeway and Kmart, has a 65,000-square-foot showroom in Fort Lauderdale, Fla., where it displays a wide variety of samples brought back from overseas including Asia.

"The flow of product into the United States isn't going to change because of S RS,' Bailey said, "but we expect we'll be seeing quite a lot more buyers here until this is settled."

Ed Dallal, chief executive officer for South Gate, Calif.-based Big A Drug Stores, said the publicity about the disease has created what may be an exaggerated sense of fear. "Right now, it is the perception of danger that is scaring people, but people cannot live in fear. Life has to go on," Dallal said.

And both Atico's Bailey and Wal-Mart's Wertz point out that in Asia, the SARS outbreak has not forced factories to close down.

"People are taking precautions just as we do here when something comes along that is new and scary," Bailey said, "but product still is being produced. People still are shipping on time. The steamships are running, and there is an abundance of new products coming into the states."

"People are shopping less in places like Hong Kong because they're much more cautious. They're not going out any more than they need to," Wertz said. Wal-Mart operates 26 stores in Hong Kong, but product flow is normal, he said. Factories are open, and product is shipping normally.

Many retailers have been expanding their import programs to include electronics, appliances, back-to-school products, gift items and beyond.

Bailey said it would be difficult to quantify the percent of total sales now generated through food, drug and mass merchandise stores of imported products, but he said the category's growth has been dramatic in the last several years and that in mass market chains that are mature in the import business, the dollar sales being generated are significant contributors to both sales growth and bottom line profits.

"For food, drug and mass market chains, imported products," Bailey said, "not only contribute significantly to margins and sales, but they also help create a unique point of difference by giving chains access to products that they can market exclusively."

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