As the nation awaits results of the U.S. presidential election, uncertainty is beginning to grow on the Covid-19 front.
New lockdown restrictions are set to pressure fashion and retail firms again, as the U.K., France and Germany impose new measures following a spike in coronavirus cases.
The U.K.’s new national measures began on Thursday and will extend through Dec. 2, but could last longer depending on infection rates. Elsewhere, France, Germany, Italy and Spain all began tightening restrictions last month, while Belgium imposed sweeping measures last Sunday.
The impact on apparel and retail, considered nonessential, is substantial. Primark‘s parent Associated British Foods plc on Monday estimated a loss of 375 million pounds, or $484.9 million, in lost sales from the second round of store closures. That estimate includes stores already temporarily closed due to lockdowns across Europe, such as in the Republic of Ireland, Slovenia and Catalonia in Spain.
Data analytics firm Springboard projects that the lockdown across U.K. retail destinations for the four-week period ending Dec.2 could see foot traffic fall 78.8 percent, with high streets hit the hardest with a decline of 87.3 percent. An extended shutdown during the key holiday selling season from Nov. 22 to Dec. 26 could see foot traffic decline by 62 percent from 2019 figures across U.K. retail destinations.
The rise in infection rates across Europe is not good news for the U.S. Europe is often considered a harbinger of what could happen elsewhere, and the statistics aren’t good. After the first wave of Covid infections and lockdowns swept Europe in February, the U.S. began battling the pandemic about a month later.
And Covid cases are on an uptick in the U.S., giving rise to a devastating new milestone on Thursday, the second consecutive day the country has recorded more than 100,000 infections, with 120,000 new cases, according to Johns Hopkins University data. Many of those infections are in Colorado, Illinois, Minnesota, Pennsylvania, Utah and Wisconsin, but cases are rising in other states as well. The Boston Globe reported on Thursday that the number of confirmed coronavirus cases in Massachusetts rose by 1,761, and that number has been steadily increasing each day. Governors in the states of Massachusetts and Connecticut issued restrictions on movement, and recommended that people stay home from 10 p.m. to 5 a.m.
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Greg Portell, lead partner in the global consumer practice at consulting firm Kearny, is already concerned that consumers could hit the pause button on consumer spending if uncertainty over election results continues for some time. That could happen even with a projected winner if the other candidate contests state results. Consumers are already battling “Covid fatigue,” fed up with social restrictions. Portell believes the U.S. is unlikely to undergo a second general national lockdown because local state and city municipalities will probably try to keep their economies chugging along. But that could change under a new administration, especially if Covid rates spiral above March’s first wave.
Still, with the uncertainty around the outbreak’s trajectory, retail faces sobering new risks.
The S&P Global Ratings retail analysts on Friday forecasted just a 0.3 percent increase in consumer spending, excluding food and beverage services, during the November and December holiday season. That estimate is far below the 4.6 percent average rate of growth of the past 20 years.
In its report, “Holiday Sales Could Bring More Chill Than Cheer to Struggling U.S. Retailers,” the retail credit team noted that rising Covid-19 cases, social distancing behavior and continued high unemployment will likely constrain in-store shopping during what is traditionally the sector’s strongest period. While the analysts noted that some consumers seemed to have started their holiday shopping “in anticipation of capacity limitations in stores and bottlenecks in delivery logistics,” there’s still the possibility that Covid-19 and macroeconomic factors could reduce holiday spending. They also expect continued elevated digital sales and omnichannel purchases to continue, but these tend not to offset the margins retailers often achieve with in-store purchases, either because of fewer impulse purchases or because of extra costs, such as free shipping.
At 8 percent unemployment, one risk to spending is the lack of a federal stimulus package to help financially struggling consumers. “Factors such as whether such a bill is passed, expected to be passed, and its potential scope are likely to have a substantial impact on consumer confidence and spending,” the analysts concluded. They also determined that spending held up through September because consumers tapped into savings from previous stimulus programs. “Confidence in economic prospects could deteriorate as consumers anticipate localized shutdowns, permanent job loss and minimal if any government aid,” said Sarah E. Wyeth, the primary credit analyst on the report.
Of course, October’s early holiday start means consumer likely have fewer dollars to spend in November and December. And while the 0.3 percent expected spend projected by the retail group seems dismal, it is still higher than the fourth-quarter year-over-year contraction of 3.3 percent in consumer spending expected by S&P Global Ratings economists.