Given the different consumer markets around the world, retailers coming out on the other side of the coronavirus pandemic should think about reopening their stores to match consumer demand in each country of operation.
President Trump at Friday’s press briefing said he believes there’s “pent-up demand” to get to work and restart the American economy. While that may be true, it could also turn out to be the opposite once American retailers begin to reopen their stores. That’s because consumers, reeling from a staggering number of layoffs, might be battle-scarred by the coronavirus outbreak and elect instead to withhold spending on discretionary purchases.
Credit analysts at S&P are predicting that consumer discretionary spending on goods like apparel, footwear and accessories may not tick up again until later in 2021.
“Retailers must start planning a recovery strategy for each country they operate in, taking into account consumer sentiment and confidence, the country’s financial stability, consumer propensity to spend on fashion, online penetration and the time in the season and promotional calendar–all of these factors will impact how and when physical stores should reopen,” GlobalData said.
The analytics firm used data from H&M‘s weekly sales figures to conclude–after seeing no bounce back for the fast-fashion chain’s recovery in China as stores reopened–that retailers need to consider their store reopening schedule after isolation measures are lifted, and whether consumer demand post peak-pandemic will be sufficient to support the cost of operating all stores immediately.
“H&M’s performance in China paints a harsh reality for what is to come across much of the world’s major retail markets, with the U.S., Spain, Italy, Germany, France, Iran, the U.K. and Turkey now having the highest number of confirmed coronavirus cases, excluding China, leading to significant slumps in consumer spend on fashion,” Honor Strachan, principal analyst at GlobalData, said.
According to Strachan, estimates from H&M’s first quarter update, specifically data provided on results in China, show that “sales were down 79 percent in week 10 despite 89 percent of its stores in the country being open, raising the question whether this is a financially viable strategy in other affected markets due to the burden on operating costs.
“Understandably, retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact to profitability by opening these stores too early could be severe,” he continued, adding that where governmental support is offered for hardships like furloughs, “it may be in the retailer’s interest to keep staff out of work until consumer willingness to spend on non-essentials returns and footfall picks up.”
While nearly all retailers in China have reopened their stores, the consumer propensity to spend is significantly higher than in mature markets such as the U.S. and western Europe, where “we expect store reopening schedules and the recovery process to be longer than what we have witnessed in China,” Strachan added.
Retail consultancy CGP expects U.S. retailers to reopen their doors around June 1. The most likely scenario is that the retail rebound will not be V-shaped, representing a sharp resurgence of demand, but instead a “rolling recovery.” And while sales will pick up, consumer spending isn’t predicted to break into positive territory until the fourth quarter, according to CGP president Craig Johnson. And while the American shopper appears resilient, given comparisons to major hurricanes, the Sept. 11 terrorist attacks and the 2008 to 2009 financial crisis, the caveat is that “she will bounce back smartly–as long as her household has a job,” Johnson said.
On the jobs front, the coronavirus has had its impact across all sectors, including retail and apparel where most store associates have been put on furlough over the past three weeks. For the week ended March 28, 10 million workers over a two-week period filed first-time claims for unemployment benefits. In the latest report for the week ended April 4, another 6.6 million Americans filed new claims. That brings the total to nearly 17 million people who have filed for unemployment benefits in just 21 days, and that number is expected to continue to rise over the next few weeks.