COVID-19 likely to result in retail winners and losers
Specialty retailers from Apple to Williams Sonoma have decided to temporarily close stores or reduce hours in the wake of the coronavirus outbreak. More than 24,000 retail locations have been closed with more closures expected.
The move is designed to protect staff and customers from COVID-19 that has rocked the world in the past two months. The decisions come amid recommendations by the Centers for Disease Control and Prevention (CDC) and public health officials to practice social distancing and be in groups of less than 10 people for the next 15 days to help slow the spread of COVID-19. This is expected to weigh on retail earnings in the coming quarters.
Macy’s announced Tuesday (March 17) it was closing all U.S. locations through March 31. Bath & Body Works said in a Facebook post on March 17 it will temporarily close its stores in the U.S. and Canada. The company says employees will be supported with pay during the closure.
Little Rock-based Dillard’s is reducing hours at stores, but none are being closed.
“We have adjusted our weekday and Saturday hours to 11 a.m. to 7 p.m. across that nation. Our Sunday hours remain as they were. For Arkansas stores, that’s noon to 6 p.m.,” the company noted in a statement.
Mickey Chadha, senior retail analyst at Moody’s, said because many employers are paying workers despite being closed there will be higher expenses relative to profits. He said that is problematic for retailers already facing tight cash flows and high debt. Prior to COVID-19, he said plenty of retailers were facing major issues and this will only exacerbate their woes.
He said government assistance could help some retailers manage their debt in the short-term, but there will always be winners and losers in the retail industry. COVID-19 will likely separate the two even more. Wells Fargo analysts expect U.S. retail will struggle for the next one to two quarters.
“With stores accounting for 75% of sales for most retailers, we anticipate massive earnings declines for the first quarter, especially as most retailers appear to be paying employees during the 2-week closures,” Jefferies analyst Randal Konick wrote in a recent research note.
On the flip side, grocery retailers are seeing traffic higher counts and are working around the clock to keep shelves stocked. The retailers are staying open at the urging of health officials. Some companies like Dollar General have a dedicated shopping hour for elderly customers. Walmart and Kroger executives have said employees are working hard to keep high-demand products in stock during unprecedented demand.
“We believe that everyone deserves to have access to fresh, affordable food and essentials, especially in times of uncertainty,” Kroger CEO Rodney McMullen said of the company’s efforts to keep items in stock. “That’s why our teams are working so hard to keep our stores clean, open and stocked. That’s why we took the precautionary step on March 2 to limit the number of cold, flu and sanitary products per order … so everyone can have access to the items they need. And that’s why our supply chain teams are working to ensure that the food, medicine and cleaning supplies our customers need are reaching our stores as quickly as possible and are available through our pickup, delivery and ship services.”
McMullen said customers first sought toilet paper and disinfectants but now are buying more fresh foods. His advice is for consumers to buy what they need and avoid stockpiling and panic. He said grocery stores will remain open, be it through delivery, curbside pick-up or in-store through reduced hours.
Nielsen reports sales of hand sanitizers were up 470% in the first week of March over last year. Disinfectants were up 385%, AND thermometer and rubbing alcohol sales were up more than 170%. Alternatives to milk saw huge increases, with powdered milk sales up 126% and sales of oat milk up about 350% in March. There were also spikes for first aid kits, hydrogen peroxide, antiseptic, soap, cold medicine and paper towels and toilet paper. Nielsen said consumers first went after pantry items dried and canned beans, rice, canned tuna and canned meat and shelf-stable foods.
Walmart President and CEO Doug McMillon said stores are receiving trucks each day and restocking shelves as fast as they can. He said some items like hand sanitizers will likely be out of stock in the near term.
Economists said extra dollars spent on groceries and consumables will benefit some retailers at the expense of others, mainly restaurants, as social distancing is enforced nationwide. Marvin Irby, National Restaurant Association interim CEO, told Talk Business & Politics this is a unique time in the nation’s history and the foodservice industry will continue serving communities any way it can.
“There are more than 1 million restaurants in the U.S., employing 15.6 million people. More than 70% of these restaurants are small businesses that support their local communities. These local restaurants run on razor-thin pre-tax margins, and they are facing an unprecedented cash flow crisis,” he explained.
He said the foodservice industry was on track to have sales of $899 billion in 2020 before the COVID-19 outbreak. He said sales are slowing and the loss of revenue will have a deep impact on small business owners.
“It’s too early to know how long the necessary guidance on social distancing will last, but restaurants are still ready to cook for their communities,” Irby said.
Restaurants have largely said they will be open for drive-thru and delivery through partners like Waitr/BiteSquad, GrubHub and Postmates. Chick-Fil-A is now take-out only, and so is McDonald’s, who said it was closing all seating and play areas in company-owned stores in the U.S.
Food delivery companies aren’t the only ones likely to benefit from social distancing policies. As more retailers require employees to work from home, Best Buy reports an uptick in sales of electronic devices like keyboards, monitors, webcams and laptops. With consumers stockpiling food, Best Buy said the sales of refrigerators and freezers are also up in recent days. Headsets.com also reports a 50% to 60% increase in sales in the past few days, with most coming from companies who want employees to use headsets while working from home.