The emergence of a new Covid variant over the Thanksgiving holiday didn’t stop shoppers from doing their share of spending, but it certainly adds to the headwinds retail is facing.
First detected in Botswana in early November, the new strain of SARS-CoV-2, dubbed Omicron, has spread quickly, cropping up in South Africa and countries across Europe, as well as Hong Kong and Australia. Canadian officials confirmed two cases over the weekend, marking its arrival in North America. Dr. Anthony Fauci, infectious disease expert and chief medical adviser to President Biden, noted Sunday that the coronavirus mutation will “inevitably” breach U.S. borders.
Global governments swiftly implemented travel restrictions, sending global stock markets into a free fall on Friday. Still, little is known about the new variant’s transmissibility or its response to widely available vaccines, and by Monday, the frenzied selloffs had stabilized in an apparent showing of cautious optimism by traders.
President Biden attempted to quell the nation’s anxieties in a Monday address, calling the variant “a cause for concern, not a cause for panic.” The administration, along with scientific and medical experts, will move forward in fighting the emerging threat with “knowledgeable actions and speed, not chaos and confusion,” he said.
The president indicated that temporary travel bans are likely to remain focused on South Africa and neighboring nations—a far cry from the rampant restrictions imposed during the surge of the Delta variant. He strongly urged American citizens over 18 to get vaccinations or booster shots, noting that the administration will release a detailed plan for mitigating the spread of the variant later this week.
Retail remains bullish
The Commander in Chief also met with CEOs from across the consumer goods sector to discuss the holiday season and Thanksgiving week sales results on Monday, with a focus on the breakthroughs brands have seen in recent weeks regarding persistent supply chain delays. “Consumer spending has recovered to where it was headed before the pandemic,” he said, though some analysts dispute the claim.
With executives from Qurate Retail Group, Samsung, Best Buy, Mattel, Food Lion, CVS, Kroger and others in attendance at the White House conference, Walmart CEO Doug McMillon underscored his confidence that the big box retailer is “going to have a really good holiday season.”
Walmart’s inventory levels are up more than 10 percent as of early November, despite the logistics delays that have caused widespread headaches for much of the retail community, he said. “While we’re all concerned about the supply chain, we have more inventory than we did a year ago, and have what we need to support the business” heading into the holidays, McMillon added.
While much of the company’s product is sourced and manufactured stateside, “for the part that comes outside of North America, the port issue has been a big issue,” he added. The move toward 24/7 operations at the Ports of Los Angeles and Long Beach has spurred “a lot of improvement,” to the tune of a 51 percent increase in containers processed over the course of the past four weeks. Despite this weekend’s news about the spread of the variant, the company remains fully focused on “working to make sure that we’re in a good in-stock position as we go all the way through the season,” he said.
Meanwhile, Dave Clark, CEO of Amazon’s worldwide consumer business, has high hopes that the mega-marketplace will continue to dominate throughout the holidays, he said on CBS’ Face the Nation Sunday. “It was really interesting to see how customers are spending in this first post-vaccine holiday as we start to come back together,” he added. “We had a record-breaking Black Friday, and we’re seeing customers engaged.”
Clark said shoppers are gravitating toward apparel this fall, with “upticks in denim and dresses.” Home and holiday décor sales also saw growth, indicating shoppers’ intentions to gather over Christmas and Hannukah. Shoppers want to “prepare themselves to go back out into the world, and that’s what we’re seeing in their spending,” he added.
While the arrival of Omicron has thrown a wrench into the already overwrought retail supply chain, shoppers are unlikely to slow down on shopping in the coming weeks, he said. “I think consumers are going to wait and see in terms of what happens with [the variant], but are going to move on with their lives into this holiday season.”
Clark is “incredibly optimistic” that scientists and medical experts will see success in slowing the spread of the new strain through targeted vaccination campaigns—though Amazon does not have plans to implement a vaccine mandate for workers at its facilities. “We do think vaccines are the way out of this pandemic, and we continue to work with our teams to incentivize them and help them understand why it’s so important, and get them vaccinated,” he said. “We’re not planning to move to mandates, as we sit today, but we think we have a very good balance of activity in place,” he added, noting that the company offers vaccines at pop-up clinics at many of its locations.
Experts weigh in
“I think what we’re seeing right now is that the consumer just destined to shop this year, any way that they can,” Michael Brown, a partner in Kearney’s consumer products and retail practice, told Sourcing Journal. Shoppers were “out in full force, walking the malls” throughout Thanksgiving week, “and the fear of not having gifts under the Christmas tree is worse than the fear of a variant that we don’t know much about right now.”
Consumers have gravitated to physical retail in part because of the last-mile shipping delays they experienced last year, along with the increased cost associated with getting their gifts delivered on time, he added. They’ve been primed to expect stock-outs at retail during the holiday season, and they believe that physical retail offers them a chance to get their hands on what is available, without the threat of order cancellations or delays. Even with this knowledge however, foot traffic was down 28 percent from 2019 levels and was also seen markedly lower in the U.K.
Brown believes it would take “proof that the variant is more dangerous than what we’ve been dealing with” to deter consumers from shopping and celebrating in person. But he also acknowledged that holiday 2021 is far from a return to normalcy, as labor shortages and port backups persist. Throughout retail’s journey toward recovery, there have been a multitude of developments “that we think just might be the domino that makes everything fall,” he said—“but I think we’re getting to a point where we’re resilient enough to get around those obstacles.”
“There are certainly more knowns than unknowns this time around,” Tom Hill, a partner leading the retail revenue growth practice at Axiom Consulting, echoed. “We know a lot more than we did in March 2020, and I think retailers are certainly you in much better shape than they were back then.”
Retail has spent nearly two years fine-tuning its e-commerce presence, as well as “redefining the customer interactions in store, and how to operate safely,” he said. Online will continue to play a huge role heading into the new year, whether Omicron’s influence proves large or small. The retailers that will flourish are those that have built out successful DTC operations through the web “and are operationally efficient.” Those that are heavily reliant on store traffic will struggle through the uncertainty, he said.
“The real results of higher prices, challenged inventory, and innovative customer engagement strategies have been deployed and are here to stay, regardless of whether there’s a new variant,” Tyler Higgins, managing director and retail practice leader at AArete, a global management consultancy, added. While retailers and consumers are still taking in the news about the new Covid strain, Higgins does not expect “any major change in the journey we have been on recently.”
“The biggest impact of the new variant will be on whatever segments of the economy—and specifically of retail—remain most exposed,” he said. “There likely will be more supply chain challenges, including production shutdowns around the world,” he added, “and then rising prices in response to rising costs, and the inflationary knock-on effect.”
While the variant will likely impact retail, Higgins does not believe it will alter the sector’s strategic outlook. “Rather, I would expect retailers to continue innovating in response to our new normal, and the expectations of a delayed recovery,” he said.
“It’s too early to tell” how Omicron will impact retail over the coming months, according to Sucharita Kodali, vice president and principal analyst at Forrester Research—but e-commerce has proven its resilience through the emergence of the Delta variant, and will likely prevail again. “Good physical businesses have been at 80 percent or more of their pre-pandemic levels” in recent months, she added, in part due to their ability to leverage strategies like omnichannel, which blend digital and physical touch points.
Companies also have a role to play in pushing a pandemic recovery, she believes—and they will begin to feel the consequences from consumers if they don’t step up fast. “I think retailers that are anti-vaccine look particularly short sighted and selfish in all this,” she said. “There was a part of America that wanted businesses to make it through the pandemic because they were innocent victims, but when they act irresponsibly, it’s a lot harder to want to help them.”
Retailers can’t help that they were forced to raise prices this year, Kodali said, but combining those actions with a resistance to requiring vaccines for front line workers adds insult to injury. “I think every sector—except maybe grocery—will be challenged, because people will just choose not to buy,” she said. Consumer hesitancy around the issue could prolong retail’s recovery, prompting “a continuation of where we’ve been, for the foreseeable future.”