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Closed – The pandemic is a calamity for many American retailers | Business

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Via The Economist

Editor’s note: The Economist is making some of its most important coverage of the covid-19 pandemic freely available to readers of The Economist Today, our daily newsletter. To receive it, register here. For our coronavirus tracker and more coverage, see our hub

AS A BROKER for H&R Retail, a commercial-property company in the suburbs of Washington, DC, Larry Hoffman has a ringside seat to what may be American retailing’s greatest calamity in living memory. Since mid-March, when America’s capital and the neighbouring states of Maryland and Virginia closed all non-essential businesses, Mr Hoffman has spent hours every day giving counsel to shopkeepers and restaurateurs who suddenly find themselves unable to pay the rent. The rest of the time he is busy helping some discount retailers, which see room for growth, find bigger premises.

As America enters a second month in hibernation, the crushing effects of the covid-19 pandemic on retailing are becoming dramatically apparent. For retailers that do not sell groceries and household goods, sales have dried up, not so much overnight as within hours. For those without much in the way of online operations, they have vanished altogether. And for those that were already struggling, including some of America’s best-known names, the future looks especially bleak.

In March America’s total retail sales fell by 8.7% from the previous month, the biggest decrease in the three decades the government has been recording them. Behind that figure are some precipitous drops. Clothing sales fell by 51% and those of home furnishings by 27%. Worse is to come. Most states did not shut non-essential businesses until the second half of March. April, shaping up to be a solid month of closures and job losses, will be devastating.

The effect will be most dramatic for department stores reliant on clothing sales, because they find themselves saddled with a season or more of soon-to-be outdated clothes. For the same reason, these retailers are less likely to benefit from the pent-up demand that may be unleashed when life goes back to normal: many shoppers will simply skip seasonal wardrobe updates. Although smaller retailers can apply to the small-business loans programme created under the government’s enormous stimulus package, there are no bail-outs for bigger ones, nor much prospect of them.

To tackle their most immediate liquidity problem, department stores have taken radical steps. Macy’s, America’s biggest such chain by sales, which also owns Bloomingdale’s, and other retail giants—Kohl’s, Nordstrom and J.C. Penney—have furloughed most of their staff, hundreds of thousands of workers. Many of those kept on are trying to work out what to do with piles of unwanted clothes: flog them cheaply online; pack them up to sell next year; or send them to discount sellers like TJ Maxx. In an attempt to cut further losses, some have cancelled orders for the autumn or told landlords they will stop paying rent.

For some retailers, these measures will be insufficient to ensure their survival. Coresight Research reckons that 15,000 stores in America could close for ever this year. J.C. Penney, which runs 850 department stores, may account for a chunk of them. Earlier this year, before the pandemic hit, the Texas-based company failed to persuade creditors to restructure some of its nearly $4bn long-term debt pile. It is now considering filing for bankruptcy. Neiman Marcus, an upmarket and heavily indebted department-store chain with 43 shops, two dozen discount outlets and two Bergdorf Goodman luxury stores in New York City, was also reported to be preparing to file for bankruptcy.

The woes of these retailers, both founded more than a century ago, highlight how the pandemic is accelerating longer-term trends. As Americans’ discretionary spending habits have changed—they shell out less on clothes than they used to and more on eating out and holidays—department stores’ sales have shrunk faster than their floor space. These changes have been compounded by the increasing dominance of big-box retailers, discounters and e-commerce.

Store closures will hasten the demise of struggling shopping centres. The loss of restaurants, which tend to have smaller cash reserves than retailers and go bust faster, will be particularly damaging, especially to America’s ubiquitous strip malls: lines of shops and other services that share a car park. Many shoppers are drawn to such places by their eateries.

Meanwhile, some retailers that were doing well before the pandemic will be strengthened by it. As shops that don’t sell food have closed, those of big general retailers that do, such as Costco and Walmart—the biggest seller of groceries in America—have seen sales grow. Shoppers using these stores are less likely to hunt department stores’ online offerings. Discount retailers, meanwhile, especially those with shops in residential neighbourhoods, like Family Dollar and Dollar General, where people can shop without using public transport, a bonus during a pandemic, are booming as more Americans lose their jobs or fear they will do so.

E-commerce will be the biggest winner. Amazon has seen such a rapid rise in demand that its infrastructure has shown signs of buckling. Last month it temporarily blocked third-party sellers from shipping non-essential products to its warehouses to allow it to process new demand. Having taken on more than 100,000 new staff in the past month, last week it said it was hiring a further 75,000.

All of this suggests that the pandemic will change shoppers’ habits in ways that are likely to be lasting. By the time America is open for business again, more consumers will be comfortable shopping online, for clothes as well as for food. Safety concerns may drive them to continue shopping from home long after shops have reopened. And Americans’ taste for discount shopping, whetted during the last recession, will have deepened too. For many, that shift will be born of necessity as well as habit.

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