(Bloomberg) -- Brick-and-mortar retailers were in trouble well before the coronavirus pandemic. A shift to online shopping since the turn of the millennium along with rising costs and over-expansion, especially in the U.S., had already forced many stores to close. The arrival of Covid-19 intensified the struggle to stay in business and accelerated changes in how and where consumers spend their money.
1. Who’s getting hit?
Pandemic-related lockdowns presented an immediate cash flow problem for retailers of all stripes as non-essential stores were shut. The American shopping mall mainstay J.C. Penney, mid-range clothier J. Crew and luxury retailer Neiman Marcus -- all three already burdened with heavy debt -- filed for bankruptcy protection in May. Renown Inc., a century-old Japanese apparel maker with brands including Arnold Palmer and D’Urban, also fell victim after years of losses. Retailers across the globe have been borrowing more money, negotiating with landlords and creditors and accessing government support to cover paychecks in a bid to ride out the crisis.
2. Are all retailers equally affected?
No. Research from Allianz SE forecast that U.S. food retailers will experience their best year since 2001, with sales up 7%, although that will come with higher operating costs, as people eat more meals at home and stock up on staples. Walmart Inc., which has more than a quarter of the U.S. grocery market, saw sales surge in its first quarter at the fastest pace in almost two decades. The British retailer Marks & Spencer Group Plc said sales in the first two months of lockdown dropped less than anticipated, helped by its efforts to keep food stores open and drive clothing and other categories online. In India, neighborhood grocers threatened in recent years by big box stores and e-commerce actually emerged better off, as the lockdown made getting around more difficult.
3. Have things picked up?
Post-lockdown, sales generally rebounded but not immediately to pre-pandemic levels. Customers remained skittish about crowds and rebuilding confidence takes time. In China, May was better than April but still down almost 3% from a year earlier. U.S. retail sales rose in May by 18%, the biggest jump since 1992, yet were still 6% below May 2019. Retail sales in the U.S. had been growing almost 4% a year for the past decade. Forrester Research Inc has predicted they will fall by about 9% in 2020, and that it will take years to get back to pre-pandemic level of sales.
4. How is online doing?
Even before the crisis e-commerce was forecast to grow to 20% of global retail sales by 2022, up from about half that in 2017. The pandemic may have accelerated that trend. Walmart and Target Corp., another big-box chain, both saw huge spikes in U.S. web sales in the first quarter, even though their physical stores remained open. Inditex SA, the Spanish operator of Zara and other fashion chains, also saw an e-commerce boom, although far from enough to offset the thousands of stores shut in April. Amazon.com Inc. also posted a first-quarter loss despite a 26% increase in sales. Founder Jeff Bezos said the company may have to absorb billions in extra costs to protect employees, reconfigure warehouses and deliver products safely, following protests over working conditions.
5. Will the online surge last?
Not at that rate, but the direction is clear. Inditex announced in June it would invest $1 billion a year through 2022 to boost its e-commerce operations, which did well during the lockdowns. In the U.S. some big retailers were encouraged by the growing popularity of ordering online for curbside pickup at a physical store, as shoppers sought to minimize their exposure to the coronavirus; Target said more than 2 million people tried its drive-up service for the first time, an unprecedented number. Walmart reported significant growth among older customers who may not have shopped much online before.
6. How are mom and pop stores faring?
U.S. Federal Reserve Chair Jerome Powell has expressed concern about stores disappearing one by one in towns and rural areas, undermining the post-pandemic recovery by destroying jobs, eroding the local tax base and increasing the sense of blight. An unprecedented $669 billion loan program for small businesses in the U.S. has been a lifeline for the more than 4 million owners who got funding, although many of the smallest and most vulnerable firms were shut out. More broadly, government programs have been helpful in preventing job losses in some countries, although as they’re phased out businesses will be faced with difficult decisions.
7. How are the malls doing?
Not great. Even Warren Buffett, who’s made billions wading in when others are fearful, is circumspect. “If you own a shopping center, you’ve got a bunch of tenants who don’t want to pay you right now,” he told investors. Mall mainstays including Gap Inc. and Hennes & Mauritz AB, or H&M, have been sued by their landlords over missed payments. In the bigger picture, oversupply has long been a problem, to the point where the U.S. has the most retail selling space per capita in the world – and the lowest sales per square foot, according to real estate company Cushman & Wakefield. The biggest mall tenant, Macy’s Inc., said in February it would close almost a quarter of its least-performing department stores over the next three years. In China, where glitzy malls are relatively new, one operator is trying to drum up sales with virtual reality shopping, where customers use a smartphone to browse an actual store such as Tori Burch or Emporio Armani, chat with the staff and place an order for delivery.
8. What about jobs?
U.S. Treasury Secretary Steve Mnuchin said that of more than 2 million retail jobs lost in April, only 16% had returned in May. Bloomberg Economics reckoned 30% of pandemic-related job losses were at risk of becoming permanent, with retailing among those most affected. At the same time, Amazon said it would offer permanent jobs to about 125,000 of the 175,000 U.S. workers it added to deal with the wave of orders.
The Reference Shelf
- Bloomberg Opinion’s Brooke Sutherland on how the biggest thing in online shopping may be a physical storefront, and why it might be bad news for United Parcel Service Inc. Andrea Felsted looks at the impact of Covid-19 on Walmart and on what we buy.
- The e-commerce boom makes warehouses hot property, The Economist’s Schumpeter writes.
- Lessons from around the world on “Retailing in a time of crisis,” originally published by the World Retail Congress.
- The Atlantic examined the retail meltdown in 2017, when the economy was good.
©2020 Bloomberg L.P.
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