Stores are silent. Restaurants are void. Shoppers are immobilized. In the face of the global pandemic, COVID-19, the U.S. economy has stumbled to a halt. According to Goldman Sachs, the novel coronavirus has had the most devastating impact on the retail industry, a sector consisting of department stores, specialty stores, supermarkets and so forth. Without a doubt, brick-and-mortar businesses, businesses that offer products or services through a face-to-face exchange, are enduring a period of economic darkness like no other.
As the number of confirmed cases and deaths in the U.S. has jumped to 699,853 and 32,838, respectively, as of April 17, 42 states have implemented the shelter in place order— essentially a lockdown.
With this order and the fear of contracting the virus, consumers are no longer taking visits to retail stores, disrupting the entire retail industry. In data displayed by Mckinsey & Company, consumers are now more likely to hold off on spendings in discretionary categories such as restaurants, apparel, and accessories.
According to the National Retail Federation, the American retail industry represents 52 million jobs and $4 trillion worth of gross domestic product — one in four of all U.S. workers and one-fifth worth of the entire economy.
Now that the direct consumer to store exchange is no longer viable, the retail industry is facing a large deficit.
“There will be tens of millions of job losses in the industry,” said Sonia Synga, the chief executive of Gap Inc.
The business model of a retailer operates and profits by generating cash from selling inventory. A retail business pays its debt, investors, workers, rent, employees, etc. with its revenue.
According to Alvarez & Marsal, many non-food businesses are operating in negative cash flow. Hence, not only are retail businesses going bankrupt, but an entire chain of associated workers and investors will also be impacted heavily. Therefore, credit facilities shrink, companies are unable to meet payroll and pay financial obligations.
No longer able to withstand the ongoing bear market, the retail industry is seeking emergency aid from the Federal government. The industry has made three requests, according to a statement made by Tory Burch, founder of high-end fashion brand Tory Burch.
First, the industry asks for rent compensation, in which the government would pay off rent until stores are able to reopen. Second, the industry requests employee salary grants that would cover over 80% of workers’ salaries. Lastly, the industry asks for tariff reliefs that last a year.
“They’re (retail companies) thinking that they have to lay off their employees at 50% to 80%, or in fact potentially go bankrupt,” Burch said on March 17. “Neiman Marcus was looking at options about potential bankruptcy. I saw H&M laying off thousands and thousands of employees.”
Burch said that she believes this is just the beginning of the retail industry fallout if action by the government is not taken.