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Could Covid and US Elections Derail Holiday Sales Even With New Stimulus?

Will lawmakers cobble together another stimulus package? Will holiday be a wash or a win? Will potential post-election protests fuel the coronavirus pandemic’s dreaded second wave?

Bank of America Securities’ global retail analysts plumbed these depths and more, noting that the current climate of uncertainty could weaken low-income consumer spending.

This would mark yet another evolution of the consumer’s economic and financial health since the pandemic struck earlier this year.

“The coronavirus pandemic has changed almost every aspect of people’s daily lives, and consumer spending is no exception,” Jastra Kranjec wrote in a report on Stockapps.com, a financial hub for amateur and serious investors.

Covid-19 is set to cut global spending to $44.3 trillion in 2020 from $48.5 trillion last year, an 8.6 percent drop, per Stockapps data projections. Statista, IMF, United Nations and World Bank, meanwhile, saw growth hitting $53.51 trillion in 2022 and climbing to $65.96 trillion in 2025.

Searching for a stimulus

The pressure is on for Democrats and Republicans after House Speaker Nancy Pelosi (D-Calif.) set Tuesday as the deadline for Congress to reach a deal for another Covid-19 stimulus package before the Nov. 3 presidential election. Lawmakers on both sides of the aisle are said to have “narrowed their differences” following a telephone call on Monday.

In March, lawmakers last agreed to a package enhancing federal unemployment benefits that since expired in July. While all parties agree that American households need stimulus payouts, the Democrats and Republican can’t look past their differences. President Trump is backing a nearly $1.9 trillion package far lower than the $2.2 trillion Pelosi is said to be pushing, even as she and Treasury Secretary Steven Mnuchin continue talks. Beyond dollar amounts, the two sides disagree on funding for state and local governments, as well as childcare provisions and the details of a national strategic coronavirus testing plan.

There’s a chance the two sides could compromise by the Tuesday deadline. Initial discussions had Pelosi seeking a $2.4 trillion package, and Mnuchin offering $1.6 trillion. But White House Chief of Staff Mark Meadows said there’s no guarantee Senate Republicans would support the bill. Senate Majority Leader Mitch McConnell (R-Ky.) plans to hold a vote Wednesday on a $500 billion coronavirus standalone bill that Democrats had blocked last month. And even if Senate Republicans reject any new deal reached by Pelosi and the White House, President Trump a wildcard. He told Fox News that he “will take care of that problem in two minutes,” but his history of flip-flopping on stimulus talks is well documented.

Election anxieties

President Trump and Democratic challenger Joe Biden are set to debate Thursday night, with new procedures in place that will mute their microphones during their initial responses to bar the kinds of ongoing interruptions that plagued their chaotic first encounter.

Trump tested positive for Covid-19 after the first debate and refused to participate in a virtual format floated for health concerns. Regardless of candidate or one’s party affiliation, Election 2020 in the U.S. is shaping up to be one of the most hotly contested battles in recent history for the highest office of the land.

Four years ago, USA Today media outlet’s editorial board broke tradition and for the first time took sides, urging readers not to vote for Trump on the grounds that he lacked the “temperament, knowledge, steadiness and honesty that America needs from its presidents,” while stopping short of endorsing then-Democratic nominee Hillary Clinton.

On Tuesday, the board once again shirked a history of political neutrality, this time supporting Biden as the candidate who “offers a shaken nation a harbor of calm and competence.”

And it asked undecided readers to consider the question Republican Ronald Reagan posed in 1980 when he ran for president: “Is America better off now than it was four years ago?”

In fairness, USA Today also published an opinion piece, by vice president Mike Pence that highlighted the challenges the Trump-Pence team faced and claimed that a “vote to reelect President Trump is a vote for a safer, stronger and more prosperous America.”

Election 2020 is already fraught with mixed messaging, particularly in the wake of Trump unsupported claim about mail-in ballots and alleged voter fraud—political tools to stir the election pot.

But voting either early or on Nov. 3 isn’t likely to end the country’s deep-rooted political polarization. Some cities are planning for riots and disruptions on Election Day and its aftermath. And if the summer’s unrest indicate what’s possible, retail might need to brace for another wave of looting and lockdowns.

Police departments in New York City and in Austin, Texas, are taking steps to ensure citizens can safely exercise their right to vote.

Squelching a second wave

As if election anxieties, stimulus strife and consumer spending concerns aren’t enough, Covid-19 is giving global nations another headache.

Italy, Austria, Belgium, France, Spain, Ireland, Scotland and Wales have all issued measures restricting social movement in a bid to choke off a rising tide of coronavirus infections.

And in the U.S., North Dakota, South Dakota, Montana and Wisconsin are fighting a spike in Covid-19 cases. The Boston Globe on Monday reported 827 new confirmed Covid cases in Massachusetts, with 15 new deaths. New York City, once the nation’s epicenter, is again seeing flareups in some neighborhoods after shedding its “hotspot” status.

The country’s daily count of 70,000 new pandemic cases on Friday marks the highest level since July, Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, told NBC’s “Meet the Press” Sunday.

“That number, we’re going to blow right through that and between now and the holidays, we will see numbers much, much larger than even the 67-75,000 cases,” he said.

Osterholm warned that “the next six to 12 weeks are going to be the darkest of the entire pandemic,” noting hesitancy in taking a vaccine, which he said “will not become available in any meaningful way until early to third quarter of next year.”

Osterholm rejected the idea of achieving herd immunity by infection rather than vaccination, which the Trump administration has been floating recently. The former will lead to more deaths and won’t accomplish much as the virus won’t be stopped and will still be out there “looking for wood to burn,” he added.

Holiday hopes

Despite the unrelenting uncertainty, retail is chugging along with its plans to redeem a holiday season unlike any other in recent memory. Nordstrom launched its holiday website, encouraging consumers to “Make Merry,” while Macy’s offered gift suggestions at a variety price points, while highlighting flexible delivery and payment options “to make holiday shopping stress-free.”

However, many consumers already started their holiday shopping last week during Amazon’s Prime Day as the season has crept earlier into October. That said, many still will reserve special promotions for Black Friday, even though the shopping day itself might mean less this year than in previous years. Many marquee retailers plan to close on Thanksgiving Day, although shoppers can still browse for deals online.

The equity analyst team at BofA Securities covering retail, led by Lorraine Hutchinson, expects holiday comps to rise 2.2 percent versus last year’s gain of 2.7 percent. Excluding Walmart, holiday comps are projected to be up 1.2 percent.

“This holiday, the continued shift online could pressure margins, but most retailers plan to start the holiday season earlier and push store pick-up to mitigate surcharges and ease traffic pressure during peak times. Retailers are shifting their assortments to capitalize on the casualization, athleisure, and home trends that have defined 2020,” BofA wrote in a research note. “Our consumer sentiment tracker suggests that low income consumers have been resilient, but uncertainties around the election, unemployment insurance and stimulus could weaken spending.”

Second-quarter digital sales drove 41 percent of specialty retailers’ sales on average, up from 27 percent in the same period last year, as Covid-19 turbocharged the migration to clicks. With FedEx and UPS slapping retailers with shipping surcharges, BofA analysts expects fees of $1 per parcel, depending on volume, which could add 15 percent to 20 percent to the normal cost for shipping apparel packages above normal volumes.

A Tuesday Cowen & Co. report indicated bullishness for softlines and broadlines retail next year, as some brands have managed to scale, right-size cost structures and trim inventory levels during the pandemic. But Cowen forecasts that the $700 billion October-through-December holiday season will see modest growth, with physical traffic down 30 percent. In a separate traffic tracking report, Cowen analysts noted that U.S. retail traffic for apparel for the week ended Oct. 17 fell by 43.2 percent, up from the 42.7 percent apparel-traffic declines from the prior week. The longer selling season is expected to be driven by digital, and low touch omnichannel services like BOPIS and curbside.

Similarly, retail consultant Walter Loeb doesn’t “see customers going into stores.”

“Much of the selling will be done online,” he said. “I see a repeat of consumers buying more of what they are wearing now, or giving gifts of money.”

Loeb believes that early promotions will mean business will be higher year-over-year in October and November but fade in December, especially if the second wave materials and election unrest ensues.

“A minimum of a one percent increase in retail sales for holiday will be reasonable because I don’t expect a boost in sales at the last minute. Rather, there will be bargain hunting instead,” Loeb said. Retailers, unsure of what consumer spending will bring, probably still have overbought for the season even if they scaled back inventory plans. That coupled with some buying misses will mean “heavy markdowns at the end of the [holiday] period,” Loeb said, cautioning that consumers might further tighten purse strings in the event of new lockdowns or disruptive protests.

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