In response to the rapidly changing climate and uncertainties surrounding COVID-19, many retailers have taken action. For some, like Macy’s, Apple and Sephora, that means temporarily closing their doors to help reduce the spread of the virus. For others, like Walmart, Target and Dollar General, it means adjusting shopping hours in order to give associates more time to restock and clean stores.
As the general public is advised to reduce the size of groups they interact with — from no more than 250 people, to 50 and most recently, from President Trump, to avoid groups larger than 10 — consumers are beginning to forego shopping for nonessential items.
Morgan Stanley analysts found that early March total retail traffic fell 9.1%, apparel retail traffic fell 3.9% and luxury retail traffic declined by 14.7%. As coverage in recent weeks in the U.S. has expanded around COVID-19, a disease caused by a member of the coronavirus family, specialty and category retailers grapple with even more traffic declines.
Additionally, Morgan Stanley and Wedbush analysts said earlier this month that neither believe e-commerce will fully mitigate lost sales from decreased shopping during this period. But not every retailer faces the same risk.
"COVID-19 and initial plans for its containment present some clear downside risks to the consumer spending outlook, but it would be premature to expect consumer spending to crater. Many categories of spending are resilient, even in the most uncertain times," Wells Fargo economists Tim Quinlan and Shannon Seery wrote in an earlier note sent to Retail Dive.
Grocery stores, mass merchants and club retailers have been faced with out-of-stocks and, in some cases, have had to limit the number of items each guest can purchase as more consumers are panic buying. This prompted a joint message from the National Retail Federation (NRF) and Retail Industry Leaders Association (RILA) on Sunday urging consumers to avoid hoarding household essentials and "shop responsibly."
The discussion forum on RetailWire asked its BrainTrust panel of retail experts the following questions:
- Which retail channel and retailers appear best positioned to withstand the impact of the coronavirus outbreak?
- What do you think is the likelihood that the coronavirus outbreak and other factors will push the U.S. economy into a recession in the coming months?
Here are eight of the most insightful comments from the discussion. Comments have been edited by Retail Dive for length and clarity.
Declining store traffics puts pressure on retailers
Mark Ryski, Founder, CEO & Author, HeadCount Corporation: In the thousands of retailers we track store traffic in, they almost all fall into one of two groups: essentials and non-discretionary. For essential retailers like grocery, pharmacy and household – traffic is predictably up. For non-essential categories, traffic this last weekend was down in the 30 percent to 40 percent range. As most experts agree, the situation in the U.S. will get worse as testing increases. This will likely continue to put pressure on retailers and especially retailers in the non-essential goods category. Even if a cure was discovered tomorrow, it would probably still take months to restore business to "normal" levels. I expect that we’ll be dealing with this through most of 2020.
A growth opportunity for e-commerce
Ken Lonyai, Consultant, Strategist, Tech Innovator, UX Evangelist: Clearly, this is a growth opportunity for m/e-commerce. People need essential goods, stores are closing, food stores have empty shelves, and many will be at home working remotely, so even those who have limited their online shopping will have little choice but to embrace it more. With panic buying driving food sales, this will be the (very unfortunate) shot in the arm online grocery sales has waited for. And of course, the major players will gain the most, but smaller sellers with high-demand goods will do well too.
But for those merchants that operate physical stores as their primary, especially for non-essential verticals, the digital gain is very unlikely to offset the physical store losses.
'Department stores are doomed'
Neil Saunders, Managing Director, GlobalData Retail: Department stores are doomed, frankly. They were weak going into this and many won’t be able to withstand a prolonged period of mass-disruption. Apparel is also at risk as demand will plummet and the sector is already over capacity. Grocers and drugstores will do reasonably well; their sales have spiked now, but they could slow if things become even more disrupted. I agree that local stores – and the dollar stores excel at that – will do well. The bottom line is that no retail sector will emerge completely unscathed. This is becoming a crisis of enormous proportions.
The crisis has pushed the economy to the verge of recession
Brandon Rael, Director, Alvarez & Marsal: The coronavirus has escalated to the point that we are on the verge of a major recession. With all non-essential retail stores, services, and operations closing for an indefinite period of time, the grocery stores, convenience stores, pharmacies and gas stations are technically well positioned to withstand the economic downturns. Retailers, restaurants, hospitality, airlines and other non-essential businesses are going to be impacted significantly over the weeks and months ahead.
While the grocery sector has been deemed essential, if any of you went shopping over the past few days, you saw the mass out-of-stocks and absolute chaos in the stores. We have yet to understand the impacts of COVID-19 on the global supply chain and how grocery stores and pharmacies could keep up with the increasing demand.
This crisis will impact the retailers who were already experiencing disruptions and undergoing transformations to adapt to the new shopping paradigms. The future is very uncertain and we are all tuning in to see what is coming next.
An uptick in home delivery to come
Cathy Hotka, Principal, Cathy Hotka & Associates: Look for a sharp uptick in home delivery of almost everything — prepared food, groceries, and goods of all kinds. Right now we’re at the "concerned" stage, but when emergency rooms start filling up and people are waiting in lines in parking lots to be tested, expect new businesses to spring up overnight to supply American households through delivery.
Small-format stores carrying essentials are well positioned
Steve Montgomery, President, b2b Solutions, LLC: We can divide retail stores into two types. Those that carry items that we must have and those that carry items that are nice to have. The first includes locations that carry food, medicine, etc. The second group includes everything else.
The short-term impact on the first group is what we are seeing now – panic buying and hoarding. The second will definitely feel the impact. That being said, I had to get something in the first category Saturday and drove past parking lots of retailers in the second group and they were full.
I agree small format stores, especially those that carry items in the must-have group, are best positioned to withstand the impact of the current health crisis.
The strongest will be those with a well-built omnichannel presence
Steve Dennis, President, Sageberry Consulting: As a practical matter we are already in a recession. The only questions now are how deep and for how long (my guess: -5 percent GDP growth for at least two quarters).
The best-positioned retailers are those who primarily sell necessities and have a strong harmonized (my term for omnichannel) presence, particularly as related to cost-effective home delivery, BOPIS and curbside pickup.
Strong brands are more likely to withstand the current pandemic
Andrew Blatherwick, Chairman Emeritus, Relex Solutions: The very strong brands like Nike and Apple are in a much better position to close than the more generic brands as they can be quite sure that they will not lose a sale. It may get delayed or it may go online, but it is less likely to be lost. For many other retailers, this is a much less easy decision as they are likely to lose sales if they are not open and a competitor in the same mall is open. We will learn a lot about people’s propensity to switch from store to online when this happens.
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