With government-imposed lockdowns and social distancing guidelines put in place to slow down the spread of the coronavirus, many businesses have had to drastically cut back on staff and services while some have shuttered for good — all of which has resulted in a devastating gut punch to the economy.
Gross Domestic Product decreased at an annual rate of 4.8% in the first quarter of 2020, according to the Bureau of Economic Analysis, an arm of the Department of Commerce. That’s a huge drop, especially in contrast to the 2.1% increase in GDP in the fourth quarter of 2019.
More concerning, the first quarter data only measures economic activity from January through the end of March and doesn’t account for the full impact of the crisis. Most analysts expect the second quarter to reveal another three months of decline — potentially the biggest shock to the U.S. economy since the Great Depression.
In fact, the Congressional Budget Office estimates the second quarter GDP could be down by as much as 40%, which would represent the worst quarter since 1947.
On the job front, the economic outlook is just as grim, as the unemployment rate is likely to reach historically negative numbers as well.
Some 3 million Americans are expected to have filed for unemployment benefits during the week ended May 2, which follows the nearly 4 million claims in the prior week. In total, more than 30 million Americans have filed unemployment insurance claims over the past six weeks.
These troubling figures have also meant a major blow to retail. As the pandemic continues to spread, global retail spending is anticipated to fall 3% in 2020, which equates to $549.7 billion. Prior to the virus, that number was expected to rise 5% to $927.7 billion, according to data and analytics company GlobalData.
“North America and Europe are set to experience the steepest drops in retail spend forecast to decrease 4.8% and 4.4% respectively,” states Sofie Willmott, lead analyst at GlobalData. “And while APAC is expected to only see a relatively minor decline of 1.3%, which looks good relative to other regions, pre-COVID-19 we had forecast the region’s growth to be 7.2%.”
This sudden change in the economy, from blue sky to storm, has made dealing with the economic fallout that much worse. As early as February, the mass market retail industry, for instance, had reason to be optimistic, as retail sales in 2019 had grown 3.7% to $3.79 trillion, according to the National Retail Federation (NRF), with projections that sales in 2020 would increase between 3.7% and 4.2%, driven in large part by ongoing double-digit expansion of e-commerce and other forms of non-store retailing.
That hopeful outlook was based on a solid economy fueled by unemployment levels near a 50-year low, continued job growth and low inflation. Consumer sentiment was also positive, buoyed by low unemployment and low interest rates, resulting in a lively housing market and a bullish stock market.
But all that evaporated in Feb-
ruary and March with the spread of the pandemic, which set off a series of stock market implosions. With Americans self-quarantining and only venturing out for essentials, March retail sales experienced a record sequential drop of 8.7%, reflecting the closure of restaurants, bars, car dealerships and many types of retail stores. But for those segments deemed essential, including the mass market trade classes, business soared as consumers embarked on a wave of panic buying of certain household goods.
“COVID-19 has hit the retail industry unevenly,” said NRF chief economist Jack Kleinhenz in mid-April. “This is a market of haves and have-nots. The haves are the stores that remain open with lines out the doors to buy daily necessities, while the have-nots are the stores that have closed and are taking the brunt of the impact of the pandemic.”
Grocery stores, for instance, saw sales surge 25.6% in March, while other segments that include warehouse clubs and drug stores experienced more modest growth. But nonessential businesses, such as apparel and accessory stores, furniture and home furnishings outlets, sporting goods stores and electronics and appliance retailers, suffered double-digit declines, both sequentially and year over year.
Still, mass market retailers on the whole may be better prepared to weather future challenges. The industry’s widespread adoption and implementation of omnichannel strategies in recent years has generally met the changing needs and wishes of consumers whose lives are increasingly governed by digital technology.
Retailers who combine their e-commerce activity with both delivery and store pickup, or click-and-collect services, for example, are not only offering customers the opportunity to shop the way they want, when they want, but are reconfirming the value of the brick-and-mortar store.
Omnichannel retailing requires rethinking supply chain logistics, store layouts, space allocation and store operations, and it demands investments in technology, supply chain, employee training and compensation, and store remodels. But it is the future of retailing.
However, that future is in doubt as the head of the Centers for Disease Control and Prevention (CDC) recently warned that a resurgence of this coronavirus could occur during the regular flu season next winter, with even more dire results.
“Don’t be surprised if the data going forward shows a worsening situation,” Kleinhenz cautioned. “Even if the economy begins to reopen in May, consumer behavior may take a long time to adjust. The road to recovery could be long and slow.”