Virus widens retail divide
‘Essential’ designation separates the winners from the losers
U.S. retailers have laid bare the consequences of being deemed “nonessential” in the COVID-19 pandemic, as sales surged at those allowed to stay open but collapsed at department stores, clothing chains and other outlets forced to fall back on online operations.
Financial results published this week have demonstrated how sometimescontentious designations by various U.S. cities and states have influenced billions of dollars’ worth of consumer spending.
Macy’s, Ross Stores and L Brands, owner of Victoria’s Secret, each slumped to a quarterly loss after their stores were closed — in stark contrast to Walmart, which posted its biggest rise in quarterly U.S. sales in 15 years.
“You’ve got a whole slew of retailers whose sales were already slow, and they happened to be nonessential,” said Ken Perkins, head of the research group Retail Metrics. “As if things weren’t trending away from them, this just accelerated it.”
Macy’s warned that it was set for a $1-billion quarterly operating loss after the closure of all its approximately 775 stores, including the Bloomingdale’s chain, caused a “precipitous decline” in revenue.
Although its balance sheet has been in better shape than those of peers J.C. Penney Co. and Neiman Marcus Group, both of which filed for bankruptcy protection this month, the closures have accelerated a decline at Macy’s. Its total debt has swelled from $4.7 billion to an estimated $5.7 billion over the last year, compared with an equity market capitalization of $1.7 billion.
Jeff Gennette, chief executive of Macy’s, said business was likely to recover only “gradually.” The group said it had about 190 outlets open and expected an additional 80 to be up and running this weekend.
Foot Locker on Friday said more than half its 3,100 stores around the world — mostly in shopping malls — were still closed, as the New York-based company reported a first-quarter net loss of $98 million and a 43% drop in sales to $1.18 billion.
In a sign that some of the effects of the crisis will be lasting, L Brands laid down plans this week to permanently shut 250 Victoria’s Secret stores across North America over the next several months. Quarterly net sales at the long-struggling company, which temporarily closed all its North America stores in March, dropped 37% from a year ago to $1.65 billion, and it had a net loss of $297 million.
The widespread closures have given a huge boost to the handful of companies that have been allowed to stay open by local authorities because they sell food and other “essential” items.
Some of these businesses, including Target, as well as Walmart, also stock a wide range of other goods, and sales at their departments selling more discretionary items, such as electronics and housewares, have also risen.
The latest retailer to report a sales jump was BJ’s Wholesale Club, which has more than 200 membership outlets in the eastern U.S.
Chief Executive Lee Delaney said BJ’s had become a “one-stop destination,” helping total revenue leap 21% in the quarter to $3.8 billion. Operating income more than doubled to $144 million.
Declarations by U.S. states and cities about which businesses must close have been contested, and several industry lobby groups fought hard to be given the valuable “essential” designation.
The National Retail Federation called on the White House to intervene and called for “big box” outlets, among others, to be kept open.
The crisis has accelerated trends that were developing long before the outbreak and is threatening to widen the gulf between winners and losers in retail.
While department store chains and other companies with out-of-favor formats had been floundering before the outbreak, chains such as Walmart have coped with the rise of e-commerce far better, thanks to a mix of convenience and low prices in stores, as well as investments in online operations.
“The divide has really grown,” Perkins said. “It will be interesting to see whether the divide closes as the economy reopens, but it’s unlikely that it’s going to narrow drastically.”