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Averting Disaster

BY Al Urbanski

Fire safety presents extra challenges to retail locations. Stores are filled with combustibles that aid the spread of fire and smoke. And confusing store layouts impede escape during emergencies. The results can be expensive: loss of revenue from store closures, and worse, loss of life.

Chain Store Age spoke with three leading fire safety experts as to what steps retailers could take to avert fire disasters. Here are their top 10 recommendations.

1. WATCH THE STOCK

One rule that is an absolute among fire codes nationwide is that racks and displays should not put merchandise within 18 ins. of a sprinkler head.

“Any closer than that and you will block the spray pattern, which should cover a diameter of 8 ft.,” said Mike Rose, CEO of Maspeth, N.Y.-based Academy Fire Protection, which serves some 140,000 retail locations nationwide.

Rose also advises store managers to regularly check that sprinkler concealer caps are in place. The caps prevent the heads from clogging, a special risk in clothing stores with lint in the air.

2. GET SMOKE DETECTORS OUT OF CORNERS

Place smoke detectors a minimum of 18 ins. away from corners. Heat rises — which is why these units are on the ceiling in the first place — but heat levels remain consistent in corners and push smoke away, rendering detectors ineffective.

3. CHECK EMERGENCY EXITS

“Badly maintained exits are something that make fire inspectors particularly nervous,“ said Gregory Harrington, a principal of the National Fire Protection Association in Quincy, Mass., which designs model codes for fire departments. “Open the doors. Make sure they are not locked or blocked. Personnel may decide to store boxes in back of a little-used doorway.”

Red “EXIT” signs over emergency exits should be lit 24-7.

4. CHANGE BATTERIES AFTER POWER OUTAGES

If your store loses power for an extended period, you need to check and most likely replace batteries in exit lights and alarms. Batteries are drained completely when power is out for two days. Building fire panels should also be checked since their motherboards could be fried by a current surge when power is restored.

5. MAINTAIN THREE-FOOT AISLES

Another nearly universal fire code standard is that store aisles need to be a minimum of 36 ins. wide. Limit in-aisle displays, which can block an aisle during evacuation.

6. INSPECT THE BACKROOM

Backrooms can be tinder boxes. Too much stock piled too high, oily rags on the floor, empty cardboard boxes and smoking employees all add up to danger. Walk backrooms occasionally with an eye to safety. Secure all flammable liquids in storage cabinets.

7. EXTINGUISHERS, ALL RISE!

All fire extinguishers must be hung on walls, not resting on floors. Although fire codes for checking extinguishers are loosely written, experts say they should be checked monthly.

8. DO BASIC EMPLOYEE TRAINING

Few fire codes require emergency training for store associates, but minimal emergency education can save lives and lawsuits. The basic message: “Get out fast!”

“Extinguishers last 12 to 15 seconds and aren’t going to do much in a big fire, so the main point of training should be to just get everybody out as quickly as possible,” Rose advised.

Employees should be instructed to check dressing rooms for customers while evacuating, and they should know the difference between red pull-boxes that trigger building alarms and red boxes with white stripes that alert the fire department.

9. HOLIDAY CONSIDERATIONS

Decorations hanging from the ceiling can spread fire quickly if ignited. They should be treated with a fire retardant spray. And watch how you manage extra stock, advised Lt. Tony Mancuso, director of the New York City Fire Department’s Fire Safety Education Unit, who performed inspections in the Herald Square retail district.

“We were usually very concerned about stock areas,“ he said. “Are they blocking aisles, and are they storing things in stairwells or near elevators?”

10. MIND THE KIDS

If your store caters to moms and kids, be sure there are no cleaning materials or open electrical sockets to which children might gain access.

“So many people child-proof their homes, but a lot of retailers fail to child-proof their stores,” Rose said.

Al Urbanski is a New York City-based freelance writer.

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Growth Strategy: Mergers & Acquisitions

BY CSA STAFF

By Stephen Wyss

As retailers eye avenues for growth in 2012, mergers and acquisitions (M&A) will be a key area of interest and activity.

Our recent survey of 100 retail CFOs found that 52% believe most M&A activity in 2012 will be on the strategic side. Opportunities for strategic buyouts — both domestic and international — are ripe, and with many retailers reporting better-than-expected 2011 holiday figures in the U.S. market, some companies may be well-positioned to move forward with acquisitions.

Many domestic retailers recognize that they are overstored in the United States, and the international market presents the best opportunity for growth. As a result, we expect to see a continued focus on international expansion, particularly in the Asian markets, with U.S.-based companies pursuing deal opportunities both foreign and domestic, and foreign companies looking to take advantage of opportunities in the U.S. market. Companies that hold the potential to increase consumer loyalty, improve or establish efficient distribution channels, and provide enhanced global reach will be vied-for acquisition targets.

Strength of brand: Strength of brand will be especially important to M&A deals this year, particularly for strategic buyers. While we saw a lot of private equity buyouts in 2011, and there are indicators that private equity will continue to be very interested in the retail sector, we anticipate an uptick in strategic deals in 2012 as strong retailers look for opportunities to expand market share and enter into new markets.

An ideal target will have an enthusiastic and loyal consumer following and present an opportunity for the acquirer to integrate and synergize existing brands with those that are acquired. While a strong brand identity can pose challenges for integration, retailers recognize the value of a loyal customer base in an economy where consumers are increasingly forced to make choices between brands and limit their spending.

With the U.S. market largely saturated, an attractive target for a strategic buyout will give retailers opportunities to distribute products in new markets, both domestically and internationally. Gaining an international distribution channel is a huge revenue opportunity for domestic retailers, but it’s not the only important channel for growth. Our survey found that more than one-quarter of CFOs (29%) say e-commerce and mobile commerce will be their primary objectives for growth, as these channels offer potential for broadening distribution at a comparatively low risk. Retailers with developed online and mobile infrastructure and advanced technologies will be attractive targets.

Logistics: The economic downturn pushed retailers to be extremely diligent about cutting costs and improving supply chain efficiencies. This continues to be a key strategy to preserve margins and will be a considerable factor in M&A deals.

Retailers will look for acquisition targets that can be easily incorporated into the company logistics infrastructure or that have strong existing logistics capabilities to meet and push forward internal efficiency goals. Thus, a strong target will have robust logistics capabilities and solid vendor and supplier relationships in markets where the acquirer sees a potential for growth.

Risks: Those who have been enjoying the fruits of international expansion will see challenges from the economy in 2012, and there remain substantial risks for those looking to grow internationally.

Some European retailers, such as Next, the U.K.’s second-largest clothing retailer, saw disappointing holiday sales. This global environment represents both an opportunity and a risk for retailers looking to expand internationally, as foreign companies may be more open to strategic deals but international markets remain mercurial.

In addition to unpredictable markets on a global scale, a significant risk for companies looking toward international expansion in 2012 will be valuation. While valuations in the marketplace have stabilized, retailers still face challenges as they aim to get good pricing for acquisitions in the face of a volatile global economy.

Overall, we can expect to see significant changes in the retail landscape during 2012, both domestically and internationally.

Stephen Wyss is a partner in the retail and consumer products practice at BDO USA, LLP.

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Focus on: Payment Security

BY Connie Robbins Gentry

A shift in consumer payment habits has had a noticeable impact on merchants that process a large volume of low-value transactions. Credit cards, historically associated with payment for higher-priced items that required financing, have become a preferred payment method for routine purchases that once were covered by pocket change.

It’s all about convenience — as evidenced from a December 2011 survey by the National Foundation for Credit Counseling. Only 6% of survey respondents said they planned to use credit cards less in 2012, but 62% said they planned to decrease credit card debt in 2012 — further substantiating the trend that credit cards continue to replace cash as daily currency.

Quick-serve restaurants, such as DavCo Restaurants — one of the largest Wendy’s franchisees with 152 locations in the Mid-Atlantic region, including the Baltimore and Washington, D.C., markets — is a classic example of a merchant that has seen a marked increase in the number of consumers paying with credit cards rather than cash.

Stacy Duncan, senior director of IT at Crofton, Md.-based DavCo Restaurants, confirmed that nearly half of the transactions in their restaurants are now paid by credit card, and in some locations the number is even higher, as much as 70% of all purchases.

While the expediency and convenience of credit card payment fundamentally supports the goal of fast food service, the trend created substantial regulatory challenges for DavCo.

“We’re classified as a Level 1 merchant, and the new PCI requirements forced us to change everything across our systems and processes in order to become PCI compliant,” Duncan reported. “We had very little security in place because our network had been started in 2001, back when we didn’t even know what we didn’t know.”

In October 2010, the Payment Card Industry published version 2.0 of the Data Security Standard (PCI-DSS) and Payment Application DSS (PA-DSS), giving merchants until Dec. 31, 2011 to meet the new requirements.

DavCo tapped RedZone Technologies of Annapolis, Md., to help determine the best security solutions to meet their needs for PCI compliance and secure the network.

“RedZone helped us realize that the best way to approach PCI compliance was to reduce scope so we could segment our network and put processes in place,” Duncan explained. “There was no way to do this without adding a firewall so RedZone identified the providers that would allow us to achieve compliance in the simplest way and by buying a minimal amount of product.”

DavCo deployed paired Network Security Appliance firewalls, from SonicWALL of San Jose, Calif., at its headquarters and SonicWALL TZ 210 firewalls at the 152 Wendy’s locations, effectively segmenting POS transactions from corporate communications. The TZ 210 was the best choice for the restaurants because it provided the fastest multi-layered Unified Threat Management firewall in its class.

“Speed was a critical factor for us, and we had to have a solution that could handle the throughput without slowing transactions at the POS,” Duncan added. “The firewall had to add security without belaboring store orders — and SonicWALL is fast enough that no one even noticed it was there.”

The SonicWALL firewalls provide two-factor authentication and centralized global management across DavCo’s WAN. Features include high-speed intrusion prevention; file and content inspection; and application intelligence, control and visualization. Following the firewall implementations, DavCo became officially PCI compliant on Dec. 31.

Additionally, a universal management appliance enables DavCo to centrally monitor, manage and report activity; and the firewall deployed at headquarters delivered secure remote access across the enterprise, including easy-to-use, secure VPN access to files and applications on desktops, servers or intranets from remote endpoints. The system is compatible with Windows, Windows Mobile, Mac, Linux and Android devices.

Connie Robbins Gentry is a contributing editor to Chain Store Age.

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