Why Retail Is At A Crossroads

Desy Papper

Photo by: STRF/STAR MAX/IPx 2021 3/20/21 Atmosphere in New York City as store closures and … [+] homelessness run rampant. Many businesses were unable to weather the economic damage caused by the Coronavirus Pandemic. STRF/STAR MAX/IPx We are entering a period of recovery – and my view of what is […]

We are entering a period of recovery – and my view of what is ahead reflects both confidence and fear. As a result, this report is written with a caution – the outlook is subject to change caused by government action and shifting consumer sentiment. Here is what I see unfolding:

For the immediate future:  

Results will show improvements. It is a year since the pandemic caused by COVID-19 started to take its heavy toll on our lives. I believe we will now see a gradual recovery and retail sales will increase substantially; comparisons with last year are easy since many stores were closed during parts of the pandemic last year. Now, states are relaxing restrictions. Despite the fact that most shoppers are still averse to “go shopping”, it is likely they will go out and spend some money. Certainly, the government hopes they will do that in order to jump-start the economy. Those easy comparisons will be true for the next two quarters.

What is shaping the immediate future: The government’s $1.9 trillion relief package – with $1,400 checks for most working Americans – is an incentive for people to start spending again, whether to buy food, eat and maybe spend for some necessities. It is a fact that some people are putting this money into stocks and may be speculating, but for most Americans this is a relief package of unprecedented impact. It is an incentive for people to spend.

The bottom line for retail: People have some more money and sales comparisons will be easy when compared with last year. Most retailers will report substantial increases in sales. I expect a burst of spending to drive an increase of +20% over last year and almost equal 2019 levels, the last pre-pandemic period.

Fall and Beyond

Fall will be more challenging overall. On the positive side of things, as we sail into the Fall season, it is likely that there will be another relief package by the government focusing on global warming. I personally hope it will also include work programs that would fix roads, bridges, and tunnels because the whole infrastructure of roads needs care so badly and it would employ a large work-force. The improvements are needed and so are the jobs.

All this suggests that some difficult times are ahead. The high unemployment rate – pegged currently at over 6% – hints at the many men and women who are in search of employment. For instance, I estimate that JCPenney
JCP
lost about 20,000 associates and many other companies that have also closed stores; in each instance, these actions have added to the high unemployment rate.

The counterpoint is new openings. I hope new store openings will help change the mood and the outlook for the economy. So far, 3,188 store units have been announced to be opened, this number greatly exceeds the 2,545 units that have already closed in 2021. The openings are encouraging. The schedule so far includes: Aldi will add 100 stores, American Eagle Outfitters
AEO
plans to open 350-400 Aerie intimate stores, Burlington stores plans 100 new stores, Citi Trends
CTRN
will add 100 stores, Lidl plans 50 more units, Ross Stores
ROST
will add 60 new stores, Sephora plans to add 60 new stores plus 200 shop-in-shops in Kohl’s
KSS
, Sprouts Farmers Market
SFM
will add some 20 stores, Target
TGT
plans to open 30 to 40 additional stores, Dollar General
DG
plans another 1,050 stores, Dollar Tree
DLTR
 
has plans for 600 new units, Five Below plans to open 170 to 180 stores, and Ulta Beauty
ULTA
will add 40 new units plus more than 100 store-in-store concepts in Target stores. I am excited about these openings since they will mean new employment opportunities and additional sales.

Taxes will be raised and present a mixed blessing. The first hint of higher taxes was voiced by government officials, and I believe that we will see Federal and State taxes increase. It will probably affect people with higher incomes and corporations. While no one likes higher taxes, the government is in dire need of some reparation to deal with debt and infrastructure issues.

The bottom line for retail: The initial rebound compared to the dismal early part of 2020 will slow down as we steadily build off an improving base. Sales comparisons will be more difficult. I expect retail sales to top last year by a mere +6%. But that is still progress.

So, what can we expect going into 2022? 

Here I show my fear and confidence. With high unemployment, higher taxes, inflationary pressures, and no major government work projects (such as road building, bridge repairs, new railroad and traffic tunnels etc.), one could look for an economic depression. (depression or recession). However, one does not know what action the Federal Government or State Governments will take to alleviate the situation. The second half of 2021 and all of 2022 need help to overcome the difficulties.

The economic outlook presents uncertainty in the United States. However, I think the same factors are affecting many other countries – so much so that I think the threat is global. Whether in Italy, England, Japan or China, the problems are similar. While China has pulled itself out of the pandemic, the protective wall that now figuratively protects this country from more virus attacks, gives one a sense of isolation in China that will hurt the outlook there and possibly affect the world as well.

That puts the U.S. at a crossroad. The new store openings are exciting. The government actions are reassuring, yet it is clear the impact of the pandemic can still be felt. I feel that we face an enormous task of rebuilding and one that requires consumer confidence. No one wants a third wave of the coronavirus. People will shop, but with caution and restraint. The heavy use of e-commerce will continue. Technology will change our lives and our needs.

It’s a new world and one that will require careful management of an increasingly complicated marketplace to restore economic stability and growth for retailers.

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