Retail sales plunged in March, offering a grim snapshot of the coronavirus outbreak’s effect on consumer spending, as businesses shuttered from coast to coast and wary shoppers restricted their spending.
Total sales, which include retail purchases in stores and online as well as money spent at bars and restaurants, fell 8.7 percent from the previous month, the Commerce Department said Wednesday. The decline was by far the largest in the nearly three decades the government has tracked the data.
Even that bleak figure doesn’t capture the full impact of the sudden economic freeze on the retail industry. Most states didn’t shut down nonessential businesses until late March or early April, meaning data for the current month could be worse still.
“It was a pretty catastrophic drop-off in that back half of the month,” said Sucharita Kodali, a retail analyst at Forrester Research. She said April “may be one of the worst months ever.”
Previously, the largest one-month drop in retail sales came in the fall of 2008, when the financial crisis led spending to plunge nearly 4 percent for two straight months. Sales ended up falling more than 12 percent before they began to recover. The current crisis is on pace to surpass that collapse in a matter of weeks.
Grocery stores, pharmacies and other sellers of essential items saw a surge of demand as consumers stocked up. But that didn’t come close to offsetting the steep drop in sales in virtually every other category. Spending on cars and car parts fell by more than 25 percent in March, seasonally adjusted. Sales at gas stations, pushed down by low oil prices as well as reduced commuting, fell 17 percent. And sales at clothing stores fell by more than half.
Now the question is how quickly spending will bounce back once the economy reopens, and how many businesses will survive until then.
Economists often distinguish demand that is deferred because of a crisis from demand that is destroyed. Retail probably has some of each. Someone who needs a new dishwasher might put off the purchase but will probably buy one eventually. But an office worker who puts off her springtime wardrobe refresh might just skip a year, meaning those sales are simply lost.
“Pent-up demand is what drives recoveries, and the good news there is we will come out of this with some degree of pent-up demand,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. She added, however, that there are “a lot of caveats.”
People who lose jobs won’t quickly resume spending once businesses reopen. And people willing to spend might be reluctant to congregate in malls, restaurants and other businesses that rely on face-to-face contact.
Even when demand does rebound, it might come too late for some retailers, many of which were struggling even before the pandemic because of changes in mall traffic and a long-term shift to online sales.
Apparel retailers, in particular, seem to be preparing for a substantial amount of destroyed demand. Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology, said she had spoken with retailers who are preparing for holiday sales to be 40 percent lower than last year.
Gap, which has been trying to rehabilitate its namesake brand in recent years with limited success, said it would continue “aggressively” closing the brand’s stores. “This crisis will absolutely set a new baseline for what component of the fleet we want to keep,” Katrina O’Connell, Gap’s chief financial officer, said last week on a conference call with analysts and investors.
The retail sector cut more than 30,000 jobs in 2019, and the losses would have been even greater had it not been for a surge in hiring late in the year. Some segments of the industry have been hit especially hard. Department stores employed nearly a third fewer people in February than at their post-recession peak in 2012, and their sales were down nearly 6 percent in February compared with a year earlier.
What happens to retail matters to the broader economy. The sector accounts for more than one in 10 U.S. jobs; only health care employs more. Its stores generate billions of dollars in rent for commercial landlords, ad sales for local media outlets, and sales-tax receipts for state and local governments.
If retailers survive and can quickly reopen and rehire workers, then the eventual economic recovery could be relatively swift. But the failure of a large share of businesses would lead to prolonged unemployment and a much slower rebound.
Economic policymakers in Washington have been trying to avoid that kind of cascade of business failures. The $2 trillion emergency package passed by Congress last month included expanded unemployment benefits so that laid-off workers can keep paying rent and buying food. And that package and programs announced by the Federal Reserve include government-backed loans and grants to keep businesses afloat.
Those programs have gotten off to a rocky start, however, with many businesses reporting difficulty applying for loans.
“They need lifeboats, and the lifeboats aren’t getting out there fast enough,” said Diane Swonk, chief economist at Grant Thornton. “This is a time when speed matters more than bureaucracy.”
The disruptions from the pandemic may ultimately hand more power to retailers able to continue operating stores during the crisis.
“It’s only going to cause a shakeout of a lot of retailers, and I think long-term it just means that some of these big guys get less competition,” Ms. Kodali of Forrester Research said. “The less competition they have, the worse they can treat everybody, whether it’s a supplier, a customer or an employee.”
John Horrocks closed BlackBird Frame & Art, a custom framing business in Asheville, N.C., based on county orders on March 26 and anticipates it will remain closed through May. Mr. Horrocks, who owns the shop with his wife, is working with a local bank to secure a loan through the Paycheck Protection Program, which will help pay the staff until the business reopens.
Mr. Horrocks, 65, said that he understood the need for the shutdown but that he had been frustrated to see national retailers continue to sell nonessential goods and services even as local businesses temporarily shutter. A Michaels location in Asheville, for instance, has remained open as an essential business and continues to offer custom framing to shoppers, he said.
“My main problem with this is just the inequity of it,” he said.
Michaels did not respond to a request for comment.
Mr. Horrocks said that he expected to make payroll through May “without a problem,” but that “beyond that, it gets very, very difficult.”
Small businesses across the country are making similar calculations. A recent survey by a team of academic economists found that roughly three-quarters of small businesses had cash available to cover two months or less of expenses; a quarter had enough for less than a month.
As a result, many small retailers are racing the clock. Two-thirds said they would be able to stay in business if the crisis lasted a month, but only a third said they would survive if the disruption dragged on for four months.
“There’s no question that if it goes on for four to six months, it will be catastrophic,” said Edward Glaeser, a Harvard economist who was one of the study’s authors. “For many businesses, almost assuredly the answer will be closure.”
The coronavirus crisis hit retailers as they were already struggling to adapt to rapidly changing shopping patterns.
“We’re going to come out of this having accelerated some of the trends that were already in place,” Ms. Zentner of Morgan Stanley said. “Internet taking share from brick and mortar, that’s going to be accelerated.”
The steep sales drop underscores the huge role that physical stores continue to play within retailing. Even as online businesses at major apparel chains and department stores have gained ground in recent years, they can’t make up for the shuttering of malls and stores.
Some chains like Best Buy were quick to roll out contact-free curbside pickup for products last month. But in the long run, such chains want customers to walk around stores and talk with staff members so that shoppers take “a second bite of the apple” as they browse, said Craig Johnson, president of Customer Growth Partners, a retail consulting firm.
For many of the nation’s nearly 16 million retail workers, the standstill has meant a loss of their livelihood, often overnight.
When Mia Lupo showed up to work at Bloomingdale’s in Norwalk, Conn., on March 16, it was clear that nothing was normal. The few customers were mostly making returns or buying sweatpants to prepare for working from home. Workers were worried about their jobs, but also about their safety.
“None of us had any idea what was going on,” Ms. Lupo, 27, said. “We’re just like panicking because we’re all hourly-wage workers, we need the money, but we also don’t want to get sick and we don’t want our families to get sick.”
The next day, Bloomingdale’s parent company, Macy’s, announced it was closing its stores — news that Ms. Lupo learned on Twitter — and it later furloughed nearly all its workers. She is now awaiting her first unemployment payment.