Retailers brace with virus surging
An anxious consumer is a frightening prospect for many
WASHINGTON – Latonya Story is every retailer’s worst fear.
With the viral pandemic surging through the country and the economy under threat, Story decided to slash her holiday shopping budget. She’ll spend less than $2,000 this season, down from several thousand dollars in 2019. Worried about entering stores, she’s buying gifts online and going out only for groceries.
“I want to be conservative,” said Story, 47, of Atlanta. “I’m not a scientist, but the best precaution is to stay in place.”
The acceleration of coronavirus cases is causing a crisis for America’s retailers and spooking customers just as the critically important holiday shopping season nears. It’s also raising the risk that the economy could slide into a “double-dip” recession this winter as states and cities re-impose restrictions on businesses and consumers stay home.
An anxious consumer is a frightening prospect for retailers as well as for the economy. Any sustained recovery from the pandemic recession hinges on consumers, whose spending fuels about 70% of economic growth.
Retailers are considering extraordinary steps to draw customers.
Some, like Giftery, a small shop in Nashville, Tennessee, are adopting their own safety restrictions. To reduce respiratory particles that could spread the virus, Giftery is asking shoppers to refrain from talking on cellphones.
“It is vital for us to stay open,” said William Smithson, owner of Giftery, which generates about 35% of its annual sales from the holiday season.
Some high-end retailers are giving customers extra coddling. Neiman Marcus is letting shoppers book appointments to take virtual tours of its holiday trees and other decorations if they’re too fearful to enter a store. The retailer hopes its customers will also get into the spirit of buying gifts.
“Business restrictions are increasing, and there will be some economic fallout from that,” said Jim O’sullivan, an economist at TD Securities. But “even without authorities announcing new restrictions, individuals are likely to pull back from activity on their own.”
O’sullivan predicts that the economy won’t grow at all in the final three months of the year – down from his earlier forecast of a 3% annual growth rate in that quarter – and will shrink 2% in the first three months of 2021. He, like most economists, expects a rebound starting in the second quarter once a vaccine is widely distributed.
O’sullivan’s forecasts assume that Congress will agree on roughly $1 trillion in new stimulus for the economy by early 2021. Yet so far, there’s no sign of progress toward an agreement. More than 9 million people will lose their unemployment aid at year’s end, when two jobless aid programs are set to expire, unless Congress extends them. Consumer spending will likely fall further.
New viral cases doubled in just three weeks, O’sullivan noted, after the previous doubling had taken six weeks. And as a consequence, many states are adopting or considering new restrictions on businesses. Maryland has limited stores and restaurants to 50% capacity. Retailers in most of California are now capped at just 25%; gyms, restaurants and movie theaters are closed to indoor customers. Illinois and Washington have limited stores to 25% capacity.
Sales at restaurants and bars fell in October for the first time in six months. Restaurant traffic declined further in November, according to the reservations provider Opentable. Hotel occupancy is down from a month ago. Consumer spending on credit cards dropped in the first week of November from a month earlier, according to data compiled by Opportunity Insights.
After the deep recession that erupted in early spring, the economy rebounded faster over the summer and fall than most economists had expected. And some industries are still faring well. Home sales rose to a 14-year high last month. Manufacturing output, too, is still growing, though it remains below prepandemic levels.
But those positive signs reflect an unequal recovery. While lower-paid employees in face-to-face industries have lost jobs or fear losing them, higherpaid Americans have mainly been able to keep working from home. These consumers have shifted much of their spending away from services – like eating out, going to movies and hitting the gym – to buying goods – from computers and home and garden supplies to appliances and fitness equipment.
Yet many of those purchases have occurred online, with e-commerce sales having jumped 29% in the past year. Sales at retail stores, excluding autos, are essentially flat over the past 12 months.
Small businesses are worried about being forced to shut down again.
“If we close, it will be a devastation,” said Paulette Garafalo, CEO of Paul Stuart, a high-end clothing retailer that operates five stores in Chicago, New York and Washington, D.C.
The stores previously closed for four months while the company pivoted to online sales. But that shift generated only about 25% of PRE-COVID business. Sales have since improved. But Garafalo doesn’t envision a boost from the holiday season.
Garafalo’s stores have called in their most seasoned sales people to alert customers to new merchandise and aggressively marketing a gift guide.