Coronavirus freezes consumer-driven US economy, testing retailers

The coronavirus outbreak has transformed the US virtually overnight from a place of boundless consumerism to one suddenly constrained by nesting and social distancing.The crisis tests all retailers, leading to temporary store closures at companies like Apple and Nike, manic buying of food staples at supermarkets and big-box stores like Walmart even as many stores remain open for business — albeit in a weirdly anemic consumer environment.
According to a PTI report: In general, the coronavirus crisis is expected to dent retail earnings while likely accelerating a trend towards online sales as more stores shut down, hastening an industry shakeout that was already underway prior to the public health crisis.
“Weaker balance sheets and relentless margin pressures will continue to push smaller, cash-starved retailers down the ratings scale and closer to default,” Mickey Chadha, Senior Credit Officer, Moody’s was quoted by PTI as saying.
“This will be exacerbated with the extreme dislocations caused by the coronavirus pandemic. There is a sharpening divide between those who have the capacity to weather the challenging operating environment and those who do not.”
Many of the companies that shut stores, a group that includes Apple, Nike and Lululemon, are stronger brands, analysts note.
Apple’s actions in response to the virus map the evolution of the outbreak. The tech giant on February 1 closed all its Chinese stores because of the coronavirus.
But by last weekend, Apple had reopened all of its China stores, even as it announced it was shutting down everywhere else through March 27 to limit the spread of the virus in Europe and North America.
“The most effective way to minimize risk of the virus’s transmission is to reduce density and maximize social distance,” said Tim Cook, Chief Executive, Apple as he announced all non-Chinese stores would be shuttered until March 27, while adding that online stores were still open.
Youth-oriented apparel chain Gap also pointed to its experience in Asia as it cut hours throughout the US and Canada, while temporarily closing more than 100 stores in areas hit hardest by coronavirus.
“While these situations are unsettling and ever-changing, we will continue to make decisions in the best interests of our employees,” incoming Gap Chief Executive Sonia Syngal was quoted by PTI as saying.
Other stores including Macy’s and crafts retailer Michael’s have remained open, but stepped up cleaning of high-trafficked areas and restrooms in response to the outbreak.
“Our stores are open to serve our customers and we hope to see you soon. However, we understand that in the current environment, some customers prefer not to visit a store,” said Jeff Gennette, Chief Executive, Macy’s in a letter to customers.
The outbreak will most certainly boost online sales growth even faster, as shown by Amazon’s announcement late Monday that it plans to hire 100,000 warehouse workers to meet surging demand.
However, analysts caution that e-commerce distribution and shipping networks are not immune to challenges from the virus.
“All parts of the economy and supply chain are vulnerable,” Neil Saunders, Director GlobalData Retail was quoted by PTI as saying. “That includes delivery companies and online orders.”
If supply chains are affected by coronavirus outbreaks, that will mean delays to deliveries, said Saunders, who expects consumer spending to be weak overall.
“Demand across the economy is going to be down,” he was quoted by PTI as saying, citing the sudden shock to the markets. “People aren’t in the mood to spend money.”
Longtime Retail Analyst Jan Rogers Kniffen said most sellers have no plan for a major hit to e-commerce supply chains and that under such a scenario, the US National Guard might be enlisted to make sure essential goods get to consumers.
Kniffen said department stores were among the most likely to suffer from the coronavirus response, in part because of the hit to mall traffic.
“When Apple says they’re going to close, that’s half the mall traffic in the US,” he quipped.