USA TODAY International Edition
Why some U. S. sectors soaring while others tank
The comeback will be a mix of struggle, success
Call it the “K” recovery, rather than a “V,” as stunning contrasts start to emerge.
With apologies to Sesame Street, the U. S. economy has emerged from six months of the COVID- 19 pandemic looking a lot like the letter “K.”
On one end of the economy are businesses that are soaring, as we abandoned offices and classrooms, settled in at home and pretty much stayed there.
Those sectors pointing up on the “K” include grocery stores and technology companies such as Zoom and Amazon.
On the downward leg of the “K” are the airlines, restaurants and hotels that many of us haven’t gone near for six months.
In this “K” recovery, “you have pockets of the economy that start to recover at an accelerated rate and others that are going to be in decline for a much longer period of time,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce.
The contrast is stunning.
“Depending on where you sit in the COVID economy, business could be booming or on the brink of bankruptcy,” Suzanne Clark, president of the U. S. Chamber of Commerce, said in a statement.
“Long gone is the notion that we’ll have a V- shaped recovery – a deep economic decline followed quickly by a sharp rebound,” Clark said. “Instead, what we’re looking at is a recovery that will be vigorous for some sectors while others remain in free- fall.”
The situation is unlike anything we have ever seen.
Social businesses lagging
Many businesses built around people gathering remain in the doldrums.
“Countless companies in the travel, entertainment, leisure, hospitality and food service industries and other employers hit hardest by the crisis – hotels, restaurants, bars, movie theaters, music venues, sporting franchises – may face a long and painful slog before they employ as many people as they did earlier this year,” Clark said.
The uneven nature of the recovery is evident among small businesses.
Loan applications coming into the Wisconsin Women’s Business Initiative Corp. have roughly doubled during the pandemic, said Wendy Baumann, WWBIC president and CEO.
The statewide economic development organization is seeing the varying effects of the pandemic on the businesses in its loan portfolio. About half needed a little support or had to slightly pivot their business model, Baumann said. A quarter of the businesses are just fine. The rest are really struggling, she said.
As some businesses struggle, so do the people who work – or formerly worked – for them.
According to state numbers, the “service- providing sector” accounts for 240,400 of the 272,000 lost jobs since February in Wisconsin. Some of those jobs have come back. Some are gone permanently.
If you’re a worker in one of the declining segments, now is the time to make changes and set forth on a new career path, Sheehy said.
Employers on the ascending leg of the “K” are counting on it, he added, because they will increasingly need new workers to replace retiring members of the baby boom generation.
Tourism wilts, restaurants shaky
Milwaukee was supposed to have enjoyed a blockbuster year for tourism, thanks to the Democratic National Convention and the usual summer festivals and events. Instead, occupancy at hotels has averaged less than 40% in Milwaukee County through the first half of the year. Last year at this time, occupancy was around 70%.
Unlike this spring when occupancy dropped below 10%, some people are choosing to travel again. The city’s tourism and convention bureau Visit Milwaukee is anticipating that occupancy will continue to grow through the end of the year, said Kristin Settle, senior director of communications and public affairs for the organization.
Still, business travel has not yet returned. Nor have big events. About 100 events that Visit Milwaukee was involved in canceled or postponed in 2020. Already, some events have canceled or postponed for 2021, Settle said.
The haves and have- nots of the economic recovery are clearly reflected in the restaurant business.
Fast- food chains and other restaurants with drive- thru lanes or those with business models centered on takeout, such as pizzerias, are widely seen as holding their own during the pandemic.
Culver’s, based in Prairie du Sac, Wisconsin, has more than 765 locally owned and operated restaurants in 25 states. Currently, more than 70% of all its sales are drive- thru and to- go orders.
“We are on track to open several more restaurants yet this year,” the company said in a statement.
That’s not the case for other restaurants.
Among fine- dining restaurants, many have adjusted to offer carryout, which some restaurateurs say isn’t sustainable. Still, others have yet to reopen.
“We know that restaurants are really struggling, without a doubt, particularly for anybody who relies on dining- in options,” said Kristine Hillmer, president and CEO of the Wisconsin Restaurant Association.
The biggest challenge for Wisconsin restaurants, especially once winter arrives and outside dining is no longer an option, is customers’ fear of dining inside, Hillmer said.
Since a Chinese study publicized in April that showed a COVID- 19 outbreak associated with a Guangzhou restaurant’s air conditioning, health officials have advised that dining outside is less risky.
Hillmer contends that restaurants, with their protocols, aren’t high risk. “We’ve seen in most cases restaurants are not a spreader,” she said.
The Milwaukee Health Department doesn’t have figures readily available, but it confirmed Hillmer’s assertion that restaurants aren’t big spreaders of COVID- 19.
Across Wisconsin, restaurants are doing better in parts of the state that are more open but which also are less densely populated than Milwaukee and Madison, Hillmer said.
The pending arrival of winter certainly comes with a sense of foreboding for restaurants.
“The holiday season is the next big season to see what happens,” Hillmer said. If consumers stay away, “I think Jan. 1 is going to be a brutally hard time for a lot of folks, and they’re going to have to make a lot of hard decisions,” she said.
Among restaurants, “70% might survive,” Hillmer added. “I think the longer this goes on, the less and less likely this is going to be.”
COVID- 19 is deciding where, how you shop
The unevenness of the COVID- 19 economy is also clearly seen in the retail business.
Grocery stores have seen so much growth that they have barely been able to keep up with demand. Online retailers and big- box discounters are also reporting a huge uptick in sales.
Kroger, which operates 106 Pick ‘ n Save, Metro Market and Copps stores in Wisconsin, said Friday that its secondquarter profit nearly tripled ( up 175.8%) to $ 819 million on sales of $ 30.5 billion – up 8.2% – from the same period last year.
Same- store sales, considered a key retail metric because it factors out sales fluctuations that result when newly opened or newly acquired stores are added, were up nearly 15%. By comparison, Kroger’s same- store sales in the same quarter of 2019 were up 2.2%.
“Grocers still face sporadic outages in the supply chain such as paper products and other items,” said James Hyland, vice president for communications and public affairs for Kroger’s Milwaukeebased Roundy’s division. “Consumer packaged goods manufacturers might not be able to catch up until next year in terms of total replenishment.”
Kroger is the grocery market share leader in Wisconsin and employs more than 12,000 people in the state.
The sales gains across the grocery industry are due in part to the huge growth of online grocery shopping. Although it has shown signs of leveling off, that trend has accelerated during the pandemic.
Other parts of retail have not fared as well.
Department stores and many mallbased specialty retailers have closed stores, laid off workers and declared bankruptcy.
Men’s Wearhouse, Jos. A. Bank, Brooks Brothers, Lord & Taylor, Ann Taylor, Loft and Neiman Marcus are among the retailers whose parent companies have entered Chapter 11 bankruptcy in recent weeks. The outlet mall in Oshkosh is in receivership after missing months of mortgage payments.
J. C. Penney, which sought bankruptcy protection in May, said Sept. 9 that it has reached a tentative deal to sell its business and stores to a group of mall owners and lenders in a move that would save the department store chain from liquidation.
Consumers restrain spending
Still, the COVID- 19 marketplace is filled with uncertainty going forward.
Consumers have clearly pulled back on their spending.
A credit card debt study conducted by personal finance website WalletHub showed that American consumers paid down $ 118 billion in credit card debt during the first half of 2020 – the most ever.
“This record reduction in credit card debt has been driven largely by generous unemployment benefits and household austerity measures stemming from the pandemic ...” the organization said in a statement.
The second quarter of 2020 marked the first time in 30 years that credit card debt among U. S. consumers has dropped during the April through June quarter, according to WalletHub.
WalletHub is projecting that U. S. consumers will end the year with a slight reduction in credit card debt for the first time in more than a decade, since the end of the Great Recession in 2009.