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Resurging Virus Could Scramble Slow Start to Retail’s Recovery: Week Ahead

More than 3.1 million people in the U.S. have been infected with the coronavirus and that number is rising, leaving some to wonder where retail’s already slow recovery is headed.

Many retailers have seen steady improvement as they’ve brought more stores back online after closing them in mid-March to curb the budding coronavirus crisis.

Express Inc. is one of those retailers. But on Friday, the fashion chain said it has seen sales and traffic fall off in states like Arizona, California, Florida and Texas where COVID-19 cases are surging, and that has significantly impacted its overall results. The resurgence is largely hitting states that were quick to ease restrictions. Infections are expected to continue rising, which could derail what little gains retailers are seeing in those areas.

New York State Governor Andrew Cuomo, alarmed by the rise in infections in the Southern and Western states, allowed New York City to enter Phase Three of its reopening process on July 6, but excluded include indoor dining until more citizens complied with compulsory mask-wearing and social-distancing requirements. A few days prior, he mandated that the state’s indoor shopping centers install coronavirus-filtering air conditioning systems before they’re allowed to reopen.

President Trump has been pushing to restart the economy, against the advice of public health experts. And Dr. Anthony Fauci, the nation’s top infectious-disease expert, has warned that some parts of the U.S. reopened too quickly, adding that some states should seriously consider shutting down again. Meanwhile, the World Health Organization on Thursday said there’s now the possibility that COVID-19 could be spread through airborne transmission, instead of primarily just through contact and respiratory droplets.

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The challenges in forecasting consumer behavior are manifold, according to David Silverman, senior director for retail at Fitch Ratings, speaking Wednesday during the credit ratings firm’s “US Consumer Behavior and Risk Profile Post Pandemic: Secular Trends Accelerate as the Post-COVID Consumer Emerges” webinar.

Not only must retailers contend with store openings and the potential for another round of government-issued shutdown mandates, but they also face uncertainty about when this outbreak will end, whether another flare-up with hit in the cooler months and just how interested consumers are in filling up malls and other shopping establishments.

How retailers might best navigate the new unprecedented and unchartered territory is unclear. What is clear is that the outlook isn’t good.

“Many retailers entered this pandemic in a much weaker condition due to threats of other competitive channels,” he said. “The pickup in a number of distressed names and defaults are likely to continue. They’ve had a complete shutdown of revenue for a couple of months and a loss of cash flow.” And that, he added, is likely to continue.”

While spending at stores has been good, many believe that has been a result of pent-up demand, coupled with consumers eager to burn through their federal government stimulus checks. June sales are expected to show an uptick, but July could see the first signs of spending leveling off.

“We expect June retail sales [excluding auto sales] to show roughly 5.5 percent year-over-year growth improvement over May, still remaining roughly 9 percent below normal. With infections growing in many states, we suspect that this moderation will continue into July, and likely affect July retail recovery,” Ajit Agrawal, strategist at UBS Securities, said.