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Why Apparel Sales Might Recover Before the Economy Does

The American economy might need another 18 months before it recovers to pre-coronavirus levels, but sales in the apparel sector might see a kinder fate.

Last week, Macy’s said first-quarter sales are expected to drop 45.5 percent, mostly due to store closures that began on March 18. But CEO Jeff Gennette said stores began welcoming shoppers on May 4 and “within two weeks of results from reopened stores, customer demand is moderately higher than we anticipated.” Outgoing CFO Paula Price believes sales are unlikely to normalize until late in 2021, and possibly well into in 2022.

In a regulatory filing on Tuesday marking a $1.1 billion debt offering, Macy’s said new in-store social-distancing measures or changes in consumer spending behaviors tied to COVID-19 might continue to depress foot traffic in stores, with troubling ramifications for sales and profits.

It also cited a potential “so-called second wave of COVID-19” as possibly stirring up a fresh round of chaos and closures in the not-so-distant future and warned of short-term supply-chain disruptions. Macy’s said it’s still running into problems getting raw materials sourced from regions hit by the virus, which continues to hamper its ability to fulfill merchandise orders.

Retailers have reason for hope

As sales creep upward in states beginning to reopen, retailers could glean crucial insights on what to order—and how much—for the back-to-school and holiday seasons.

Target CEO Brian Cornell last week said federal stimulus checks that hit mailboxes in April nudged customers back into the stores where they shopped across all categories, marking a welcome departure from a laser focus on food and consumables. Apparel sales picked up in May, Target said.

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Noting a retail sales acceleration that began in mid-April and spilled over into May, Dana Telsey, founder and chief investment officer at Telsey Advisory Group, questioned “how much of this was driven by the U.S. government stimulus versus underlying pent-up demand for discretionary items.”

And data from indicates that the wider U.S. apparel sector suggests a “recovery” in progress when viewed from a sequential basis. The firm’s nationwide data shows the sector up 100 percent week-to-week for the week of May 4, improving more than 100 percent again for the following seven-day span.

Despite the encouraging trend, retail still a long way to go before apparel sales can be described as healthy. In year-over-year data comparisons, the week of May 4 showed a decline of 87 percent, with the week of May 11 slightly better, but still down 71.8 percent.

By region, said Florida apparel traffic improved from down 87 percent year-over-year for the week of May 4 to being down just 55 percent for the week of May 11.’s traffic data tracking indicated the same trend for Georgia, with traffic down 75 percent year-over-year for the week of May 4 and then down just 23 percent in the comparison a week later. The two states are among the first to restart their economies. Epidemiologists are keeping close tabs on the hospitalization rates to see if those areas show an uptick in new COVID-19 cases after these states reopen. marketing vice president Ethan Chernofsky believes the “retail economy” is in the throes of recovery—but that’s not without its challenges.

“The real question is whether the pent-up demand will be able to overcome the continued restrictions many companies and states are still imposing post-lockdown,” he said. “Should the former be true, a return to the offline apparel sector may come far faster than many expected.”

Consumers care more about financial than public health

The most recent biweekly Deloitte global survey tracking personal safety and economic vulnerability found that as restrictions ease, health concerns lessen while financial worries continue to linger.

According to the Deloitte Global State of the Consumer Tracker, which polls 1,000 consumers in 15 countries, less than half of U.S. consumers (48 percent) are worried about their personal health as of mid-May, down from 57 percent during the COVID-19 peak in early April. Financial concerns failed to subside, with 27 percent of consumers anxious about making upcoming payments and 43 percent putting off large purchases. Thirty-six percent of millennials ages 18 to 35 expressed concerns about making upcoming payments.

More than one-third (37 percent) of American consumers harbor fears of losing their jobs and joining the more than 36 million peers suddenly unemployed in the past several weeks. On average, across all countries, 40 percent of respondents who were still employed worry about stepping into the unemployment line.

“With regard to consumer sentiment and behavior, we are observing some early positive signals across the world which should help give confidence to business leaders as they transition from responding to this crisis to rebooting their recovery,” said Seema Pajula, vice chairman, U.S. industries and insights leader, U.S. consumer industry leader at Deloitte. “While the next few months will be full of challenges, consumers are demonstrating that they are eager to return to some semblance of normal life—even if cautiously.”

The survey also found that 42 percent of U.S. consumers feel safe going to the store, up significantly from 30 percent in April. Also, the number of consumers who intend to primarily shop online is gradually falling, particularly for apparel and electronics, Deloitte said. And while 82 percent of Americans plan to “buy online, pickup in store” in the next four weeks, only 40 percent plan to use this service for safety reasons, down from 48 percent. Nearly one-third of respondents, at 32 percent, said prefer BOPIS as a way to dodge delivery costs.

For now, consumer confidence appears to have stabilized in May. On Tuesday, The Conference Board’s Consumer Confidence Index inched up slightly to 86.6 from 85.7 last month. The Present Situation Index fell to 71.1 from 73.0 last month, but it’s the Expectations Index, which rose to 96.9 from 94.3, that suggests consumers are feeling more optimistic now that some states are reopening.

“Short-term expectations moderately increases as the gradual re-opening of the economy helped improve consumers’ spirits,” said Lynn Franco, The Conference Board’s senior director of economic indicators.

“However, consumers remain concerned about their financial prospects. In addition, inflation expectations continue to climb, which could lead to a sense of diminished purchasing power and curtail spending,” Franco added. “While the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers’ heads.”

In May’s report, respondents who said they expect business conditions to improve over the next six months rose to 43.3 percent from 39.8 percent. However, their outlook for the labor market was mixed. The proportion expecting more jobs in the months ahead fell to 39.3 percent from 41.2 percent.

Beth Ann Bovino, global U.S. chief economist for credit ratings firm S&P, believes a recovery could stretch on into 2021 and beyond. “We are not expecting the U.S. to return to pre-crisis levels for two years,” she said on Yahoo Finance’s The First Trade. “Markets seem to be a little bit more optimistic than we are, and I would say other economists are as well.”

Bovino noted the 38.6 million people who filed for first-time unemployment benefits over a nine-week period. By contrast, the Great Recession in 2008 and 2009 needed 80 weeks to hollow out the job market to a similar extent. “We have a long way to go. The other thing is how fast will they get their jobs back,” she said.

Bovino hopes businesses reopen and recall furloughed or laid-off employees. But the larger question is whether companies can “survive this ordeal, and if they do, will they have the wherewithal and capacity” to bring staff back, she said, adding that pre-crisis unemployment levels might return until 2023.

Economy could need 24 months to reach to pre-COVID levels

Public health and economic vigor both figure into societal wellness, but how to balance the two seems to be the conundrum politicians are grapping with at the moment, with implications for the upcoming November presidential election. Open too soon and the local state and city economies could see another hit if they need to shut down again. But ultimately, it will be Americans who decide the course of the U.S. economy based on their willingness to be in close proximity with others, whether eating in restaurants, going to gyms, sitting in movie theaters or shopping in malls.

Setback and second-wave potential aside, just how long will it take before the U.S. economy begins to recover to near the level it was prior to the COVID-19 outbreak remains a topic of debate, although one thing is certain—no one believes it will be anytime soon.

Though the markets will eventually recover from today’s Great-Depression-esque unemployment levels, “it will be a different economy that’s coming back,” David Rubenstein, cofounder and co-executive chairman of private equity firm The Carlyle Group, said during the Financial Times Global Boardroom digital conference earlier this month. The world, he added, “will not fall apart.”

Rubenstein expects another stimulus bill or bailout next month and suspects it will be another trillion-dollar deal. Congress in March passed a $2.2 trillion relief package that surpassed the $700 billion Wall Street bailout during the 2008 financial crisis. And the Federal Reserve moved quickly give the economy a boost in March by lowering rates to encourage businesses to invest and consumers to borrow.

So while interest rates are currently low, they won’t stay that way forever. “When interest rates rise down the road, my children and grandchildren will pay it off…. I suspect it will be one year or a year-and-a-half before we get back to anywhere close to what we had before this,” Rubenstein said. He expects the fiscal stimulus packages could have the U.S. seeing higher inflation about 22 months out.

Prior to the coronavirus pandemic, America was expected to reelect President Trump later this year, Rubenstein said. He believes the state of the economy will determine who triumphs in November. That means there’s still a chance he could win re-election, a point Rubenstein acknowledged particularly if the economy sees an upswing in a few months.

If presumptive Democratic nominee Joe Biden takes the election, the new administration must have a plan in place to take up the mantle of the COVID-19 crisis. “You can’t wait one or two months to take your [next] steps. [It will] need to deal on Day One with the problems still with us,” Rubenstein said.