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Covid Retail

Is Retail on the Ropes?

Aug. 7, 2020
COVID-19 resurgence said to be testing economic recovery “daily.”

In spite of earlier indications that the economy was poised for a steadily strengthening recovery, the resurgence of the COVID-19 pandemic is shaking its very foundation: consumer spending.

“Optimism about the economy and retail spending is being tested daily with the spread of the Coronavirus,” says Jack Kleinhenz, chief economist of the National Retail Federation (NRF). “Big questions are looming, and we are all grappling to discern what incoming data is telling us about the health of the economy and consumers. Depending on the data selected, the answers are not entirely clear.”

The Consumer Confidence Index decreased in July, after increasing in June, The Conference Board reported. The Index now stands at 92.6 (1985=100), down from 98.3 in June.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved from 86.7 to 94.2. However, the Expectations Index—based on consumers’ short-term outlook for income, business and labor market conditions—decreased from 106.1 in June to 91.5 this month.

“Looking ahead, consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects,” says Lynn Franco, senior director of economic indicators with The Conference Board. “Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending.”

The percentage of consumers expecting business conditions will improve over the next six months declined from 42.4% to 31.6%, while those expecting business conditions will worsen increased from 15.2% to 19.3%.

Not surprisingly, in the present circumstances consumers also were less optimistic about the job market, the board found. The proportion expecting more jobs in the months ahead declined from 38.4% to 30.6%, while those anticipating fewer jobs in the months ahead increased from 14.4% to 20.3%.

Consumer spending had been reported up 8.2% in May, ending two consecutive months of decline, and was up another 5.6% in June. Meanwhile, retail spending as calculated by NRF—excluding automobile dealers, gasoline stations and restaurants to focus on core retail—was up 4.9% in June. (Monthly numbers for July are not available yet.)

As an example of what may be on the near horizon, the Federal Reserve Bank of New York’s Weekly Economic Index—a composite of indicators—worsened from -6.65% on July 18 to -7.24% as of July 25, with bank officials citing a decrease in retail sales as the main driver of the decline.

One problem with making an accurate real-time forecast is that many of the reports economists traditionally rely on are issued on a monthly and sometimes quarterly basis, with weekly reports tending to support the monthly ones.

But as that data develops, it now suggests that the economy is moving sideways, Kleinhenz observes. “Time will tell, but the bottom line is that the economy is far from being out of the woods. The question is whether it is re-entering the woods.”

Regular news reports of bankruptcy filings and closings of retailers both large and small may be contributing to the deterioration of consumer confidence, the most recent being the Chapter 11 filing by the storied department store chain Lord & Taylor, which has existed since its New York founding 194 years ago in 1826.

Future View Dims

CreditCards.com conducted an online survey in June of 2,332 adults and found that many of them plan on spending less after the pandemic than they did before it started.

The top areas where respondents said they would cut back include tickets for movies, sporting events, concerts and theater—almost half (45%) said they won’t be patronizing those businesses as much as before the pandemic started. But that is hardly surprising, given the inability to avoid crowds at such events.

In addition, nearly as many people said that they’d curtail their bar and dining out visits (44% and 38%, respectively)—and millennials are more likely than older adults (41% versus 35%) to cut back at restaurants, the company reported.

Ted Rossman, industry analyst at CreditCards.com, says social distancing mandates won’t be the only thing keeping crowd numbers down as businesses try to move forward—he notes that a significant number of Americans plan to stay away on their own accord.

“Perhaps that’s because they’re struggling financially, they learned to live without this activity during the quarantine, or they worry it won’t be safe even after restrictions are lifted,” Rossman says.

The survey also found that there will be belt-tightening in areas other than retail goods. People said they plan to spend less on gym memberships (31%), child care (28%), haircuts and coloring (24%), housekeeping (24%) and charity donations (14%) after the pandemic.

Some consumers do plan to spend more after the pandemic: Of all the people who spent in these categories pre-pandemic, some plan higher spending on child care (32%); charity donations (28%); housekeeping (26%); restaurants (19%); gym memberships (18%); hair services (17%); bars (16%); sports, concerts and theater tickets (14%); and movie tickets (12%).

Many consumers are showing generosity to retail businesses located close to their homes. Because American businesses are struggling due to closures, one positive sign is that 73% of those polled reported they have done—or plan to do—something nice for small businesses that are floundering.

In addition to those who have already done something nice for a provider, 68% say they plan more generosity as business activities resume. Almost half said they would patronize small businesses more (49%), many answered that they’ll tip service providers more generously than usual (42%), and some said they will pay extra for services or back pay for unused services to compensate for lost business (11%).

According to CreditCards.com, age and income have an impact on tipping frequency and amounts. Boomers are more likely to be tipping more than Gen Xers and millennials (43% versus 39% versus 33%), and those who have yearly household incomes of $80,000 and more are more likely to be tipping more than those earning between $40,0000 and $80,000 along with earners making less than $40,000 per year (54% versus 42% versus 26%).