Skip to main content

What’s Keeping Retail Up at Night? Not Just Elections: The Week Ahead

While the weeks that follow the long Labor Day weekend in the U.S. will likely focus on the upcoming presidential election, there are other issues that also will be key as 2020 moves closer to year end and into 2021.

The below issues center around the coronavirus pandemic and expectations surrounding an economic recovery.

Consumer sentiment

The August findings from an IBM Institute for Business Value survey of global consumers indicate that people are highly concerned about the impact of COVID-19 on their daily lives.

Of the over 14.500 adults who were surveyed, there is indication that the changes they are making in terms of how they work, shop and live may not shift dramatically even once a vaccine becomes available. “Organizations need to focus on building trust with their workforce and customers, and agility to deliver solutions that meet them where they are,” Jesus Mantax, senior managing partner at IBM Services, said.

Many surveyed consumers believe they will see more pandemic events like COVID-19 in the future. In the U.S., 69 percent believe a second wave will hit later this year. And at least three in four respondents expressed similar views in the U.K., Mexico, Spain and Brazil. In one bit of optimism, one-third of American respondents believe the U.S. economy will recover in 2021, while those in India and China were most optimistic about their national economies recovering in 2020.

By generation, 69 percent of millennials are concerned about job security, while baby boomers were the most pessimistic on an economic recovery, with seven out of 10 reporting that they expect to see an economic downturn or significant recession. The most optimistic group was Generation Z, with over half believing the economy will recover to its pre-COVID-19 state in the next few months.

Related Stories

So what will this mean for shopping, since the all important holiday season is just around the corner?

Retailers that have thus far reported on second-quarter earnings have spoken about leaning into use curbside pickup to help meeting social distancing requirements. The IBM study noted that 46 percent of respondents said they ordering digitally for curbside pickup, versus just 18 percent pre-pandemic. And even 30 percent said they’ve used a virtual fitting room to try on an outfit, versus 9 percent pre-pandemic. And seven in 10 said they believe a vaccine won’t be available until 2021 or later. More importantly, many aren’t sure it they will be comfortable visiting many types of venues. And 27 percent said they would only visit a shopping mall once a vaccine is available.

Looking ahead to Q3, and even Q4 for apparel spending

A U.S. softlines consumer spending analysis from UBS apparel and retail analyst Jay Sole last month indicates that the apparel spending rebound in June will likely taper off in the third quarter, citing the pandemic for the decline. About 68 percent of Americans said they are “very” or “extremely” concerned about Covid-19, versus 66 percent in June. And only 46 percent think the economy will rebound to what it was, versus 49 percent in June.

More importantly for apparel brands and retailers, consumers are also changing their priorities. The UBS analysis indicates that 63 percent agree “buying items like clothing are not as important to me at this time.” The percentage has stayed the same since June. And weather in the fall months could also hurt sales.

Sole is expecting spending levels will be down to the high-single-digit percent to low-double-digit percent, a level that he says presumes the third quarter will be slow, as well as the fourth quarter and the first half of the first quarter of 2021. “Furthermore, if the economy hasn’t recovered by Spring, second quarter 2021 will face a very difficult compare as retail [comparison] laps the stimulus [from second quarter 2020,” he said. That means many softline firms won’t return to real growth until the back half of 2021, he concluded.

Even a presumed stimulus package in the works and a potential vaccine in the fourth quarter may not be enough to juice apparel sales. Noting that the latest demand for apparel is weak, Sold added that even a vaccine probably won’t change the outlook on spending. “In August, only 28 percent of survey respondents agreed ‘It will go back to the way it was before the pandemic’ versus 41 percent in April,” he said, noting that “weaker-than-expected sales would be very problematic” for retailers including Nordstrom, Macy’s and Kohl since slow business would “severely compromise” their ability to return to positive EBIT (earnings before interest and taxes) margins.

Jobless claims seem to be easing, but…

First-time claims for unemployment benefits fell to a seasonally adjusted 881,000 for the week ended Aug. 29, the Labor Department said on Thursday. That marks the first time initial claims fell to that low a level since the pandemic began in March.

Some may argue that the U.S. job market is showing signs of a recovery, even though it’s at a slow pace. That’s not likely to give comfort to those who remain unemployed. The Labor Department data shows that 29 million Americans are receiving assistance from state and federal programs. And in recent weeks, the numbers could rise again. American Airlines said it could lay off 19,000 as of Oct. 1 if Congress fails to provide support to the industry. United Airlines said it’s planning 16,000 furloughs.

Sarah House, senior economist at Wells Fargo, notes that the jobs recovery is showing signs of slowing. While employers added 1.37 million jobs last month, that included temporary Census workers.

“In ordinary times, a 1.37 million gain in payrolls would be considered substantial, but of course these are no ordinary times. Payrolls remain 11.5 million below their February level, with still under half of the jobs lost recovered. An increasing share of the jobs lost since the start of the pandemic have become permanent. While encouragingly, the number of workers reported on temporary layoff plunged 3.2 million, permanent job losers rose by 536,000 (both unadjusted). Meanwhile, the median duration of unemployment has stretched to 16.7 weeks,” House said.

The economist added that as fewer workers expect to be recalled, links to the labor market become more tenuous, which then lengthens the outlook for an economic recovery.

Digital services taxes

Digital services taxes on big tech will be a topic to closely watch over the next several months and into 2021. The use of retaliatory tariffs as the weapon to exert financial pressure over technology matters has been a topic since last year, but now could get worse. Europe last year began implementing the taxes, setting the stage for the continent to become the center for the next trade war.

France first instituted a digital tax on internet services by foreign entities, such as Amazon, Apple, Facebook and Google. Italian lawmakers followed. But the U.S. and France subsequently put on hold implementation of the tax through 2020 to give them time to negotiate a resolution. Both France and Italy’s tax rate is three percent on digital revenue.

Instead of waiting for a resolution that may not come to fruition, U.S. tech firms have responded by passing on a portion of the costs. Apple plans to raise charges for developers on its local App Stores, while Google will raise fees for advertisements bought in the U.K. Amazon will raise costs by 2 percent for third-party sellers on the local sites.

President Trump has already threatened to raise tariffs on European imports connected to the Airbus/Boeing dispute involving the European Union as a way to exert pressure on  negotiations to resolve the Digital Services Taxes matter. But given that there could be a changing of the guard once election results are in, who knows what will happen next.