The retail industry was hit hard by COVID-19 and very few, if any, retailers will walk away unscathed. Whether by choice or by government mandate, tens of thousands of shops across the country have closed their doors, hoping to one day reopen. These current closures could also accelerate the shift to online retailing, as 100,000 physical retail locations are predicted to close by 2025.
The retail industry has experienced a 60% decline in employment from mid February to the end of April. Even among individuals who remain employed, there has been 10% reduction in hours. Many retailers may never reopen, and bankruptcies are expected to rise. J. Crew was the first national retailer to file for bankruptcy, with Neiman Marcus, J.C. Penny and Guitar Center just a few examples of the additional companies that have already missed payments and are likely to file as well. While the economic effects of COVID have caused retailers to be more likely to declare bankruptcy, ironically, it could also make it more difficult to file. Closing sales are key in determining the value of the company, which is what lenders analyze. Due to stay at home orders, stores are unable to increase their profits through liquidation sales, and instead have merchandise sitting in their stores depreciating in value.
Looking Towards Reopening
Stores have begun to look towards returning to business, and as of the end of April about 15% of inactive businesses have begun to reopen. However, the question remains of what this reopening will look like. Nonessential retailers in the US will likely follow the lead of current grocery store and drugstore practices, as well as current efforts used by China in their re-opened retail stores. Both retail employees and consumers are likely to wear protective gear such as masks and gloves. Contactless payment and curbside pickup is likely to remain a popular option to allow consumers to continue social distancing efforts. Another strategy is to set shifts with no overlapping employees over the various shifts, to prevent spreading of the virus if one shift is exposed. Consumers should expect to have their temperatures checked upon entering a mall as well.
Concerns about Reopening
As states begin to lift their stay at home orders many retailers remain concerned about the desire of consumers to shop, either from fear of infection or lack of economic funds. A survey by a consumer research group, taken April 7th to 9th found that 24% of consumers would not feel comfortable shopping in a mall for more than six months. Another concern of major retailers is that states may reopen at different dates, causing logistical difficulties if all supply-chain warehouses cannot open uniformly.
Many retailers may benefit from the CARES Act and the Main Street Lending Program. Under these provisions a $350 billion Paycheck Protection Program has been launched, which provides forgivable Small Business Administration loans to certain retailers. In order to qualify for this loan, the retailer must employ under 500 individuals. The Main Street Lending Program, created by the Federal Reserve, is currently designed to offer support to small and medium-sized businesses that were in good financial standing prior to the start of COVID. Officials are conflicted over how much aid to offer retailers. Some argue that there is no point in offering loans to stores that may not survive the shutdowns, whereas others argue that these investments are worth it, as the failure of large retailers could cause a huge negative ripple effect on the economy.