The Supply Side: U.S. retail sales forecast for 2020 plummets 10.5%

When 2020 goes into the history books, retail analysts say it will be a year like no other. The year began with a robust forecast by the National Retail Federation of 3.5% to 4.1% total sales growth to $4 trillion, excluding automobiles and fuel. The forecast factored in uncertainty from the lingering trade war, presidential election and early signs of COVID-19 in Asia.

Fast forward nearly six months and there are plenty of retail casualties. The latest forecast by eMarketer expects U.S. retail sales to drop 10.5% this year amid the recession, which is predicted to have deeper impacts than the Great Recession of 2008. In recent history, the biggest drop in retail sales — which includes auto and fuel — fell 8.2% in 2009.

Analysts expect the 2020 dip will be lower. The forecasted decline will take total sales back to the 2016 level, erasing three years of growth.

“This is the sharpest consumer spending freeze in decades in the U.S.,” said Cindy Liu, eMarketer senior forecasting analyst at Insider Intelligence. “In just a couple weeks, as Americans sheltered in place, retail sales fell dramatically in March. With sales hitting their lowest point of the year in the second quarter, it will take years before consumer activity returns to normal levels.”

The estimates assume widespread social distancing measures, which were gradually lifted in May, will continue to ease and economic activity will slowly resume in the third quarter. That said, consumer spending will likely remain dampened throughout the year.

Retail sales through May are down 6.1% year-over-year, according to a U.S. Department of Commerce report posted June 16.

Liu said total retail sales won’t rebound to 2019 levels until 2022, and she estimates that throughout the forecast period, sales will be lower than previously predicted.

Liu said e-commerce is the bright spot in the retail space, with sales expected to jump 18% this year as more consumers shop online as widespread social distancing measures linger.

Food, health and beauty and beverage are expected to be the categories that buck the downward trend. Total food and beverage sales are forecast to jump 12.5% this year to reach $1.11 trillion, while health and beauty sales are pegged to grow 6.9% to $556.3 billion.

Even though e-commerce sales have been strong, they have not been robust enough to counter the downward slide in brick-and-mortar sales.

“Everything we’re seeing with e-commerce is unprecedented, with growth rates expected to surpass anything we’ve seen since the Great Recession,” said eMarketer principal analyst Andrew Lipsman. “Certain e-commerce behaviors like online grocery shopping and click-and-collect have permanently catapulted three or four years into the future in just three or four months.”

Online sales are expected to top $709.78 billion, or 14.5% of total sales, according to eMarketer. The top-growing e-commerce categories will be food and beverage at 58.5% and health/personal care/beauty at 32.4%, as Americans turn to online ordering for household essentials. Apparel and accessories, the second-largest e-commerce category in overall sales, will grow 8.6% as consumers shift spending from more discretionary, nonessential categories, Lipsman said.

Because of Walmart’s online grocery presence, this year it will surpass eBay as the No. 2 e-commerce retailer by sales behind Amazon, eMarketer reports.

RETAIL CASUALTIES
As the COVID-19 crisis continues to unfold and states begin phased reopenings, the casualties are mounting for retail establishments. Coresight Research predicts U.S. retailers will shutter 20,000 to 25,000 stores this year, with up to 60% of the closures hitting U.S. malls.

The forecast was recently ratcheted up from 15,000 closures predicted before the COVID-19 crisis began. The 2020 closures are expected to break last year’s record 9,802 closures tracked by the firm.

“Given that recovery to pre-crisis levels may be gradual, retailers that were struggling to stay in business pre-crisis are unlikely to have the wherewithal to stay the course on the road to recovery,” Coresight founder and CEO Deborah Weinswig said in a recent report.

Consumer spending has been mixed in recent months, bottoming out in March, then rebounding slightly in late April as stimulus checks began to hit consumer bank accounts. Walmart reported a sharp rebound in non-discretionary sales in late April and said it was continuing into early May.

Overall retail sales fell 16.4% in April, despite gains in food category sales and outdoor gardening, adult bicycles and even fabric and craft supplies.

Retailer bankruptcies have included Neiman Marcus, JCPenney and Stage Stores. Men’s Wearhouse, Jos. A. Bank Clothiers, Steinmart and Brooks Brothers are on the bankruptcy bubble as they seek help from lenders.

Weinswig said the retail sector was in transition well before COVID-19 arrived. More than 9,800 stores closed in 2019 as more category sales gravitated online. Mall traffic has also been weak in recent years, while off-price discounters like Ross  Stores and The TJX Companies located in strip centers have performed well.

COVID-19 is creating winners and losers with Amazon, Costco, Target and Walmart all managing well, according to Scott Benedict, director of retail studies at Texas A&M University and a former Walmart executive.

Benedict said the big names have the means to handle the recession, and those with a value proposition are also favored when consumers pull back on spending.

Mark Cohen, director of retail studies at Columbia University, said COVID-19 is creating “haves” that have more and “have-nots” with much less, and therein lies the crisis. He said retailers that can hang on will face painful questions about paying rent, having money to place advance orders, bringing employees back and filling holes in their supply chains. Until there is a vaccine for the virus, Cohen said there is always a risk of another wave of infections that could force additional lockdowns.

All eyes are on retailers through the summer months to see how quickly consumers return to brick-and-mortar and how quickly the unemployment rate improves. Cohen cautions that just because consumers return after stores reopen does not mean spending will increase enough to overcome losses sustained in recent months.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.