The COVID-19 pandemic has forced discretionary retailers to temporarily shutter stores around the U.S. to help stop the spread of the virus. Desperate times call for desperate measures, and to make up for lost in-person sales, retail chains have been trying to push consumers to shop online through unprecedented sales and promotions.
However, many cautious consumers aren’t biting during the crisis. Most aren’t looking to buy fashion apparel or accessories, and instead, are spending money on groceries and other necessities.
“Discretionary apparel, accessories, etc. are just not selling. Not out of closed stores and not online, which is open,” says Jan Kniffen, a retail consultant and founder of J. Rogers Kniffen Worldwide Enterprises, an equity research and financial management consulting firm specializing in retail.
“While online sales are up dramatically for Target, Walmart and Costco, even their discretionary sales are not up online or in-store. And they don’t have a traffic problem like everybody else does. They’ve got plenty of traffic and[still] nobody is buying those products.”
Given the extremely precarious financial situations many Americans find themselves in, not many people feel they need a new handbag or an Easter outfit, adds Gabriella Santaniello, president/founder of Los Angeles-based retail consulting firm A Line Partners.
“People are just worried about having a job and having supplies,” Santaniello notes. “I just think that discretionary is so far from everyone’s minds right now. People aren’t buying, but even if people are tempted to buy, for the most part, they’re saying, ‘Let’s just wait it out.’”
That’s not stopping retail chains from trying
Department stores and apparel chains are promoting “quarantine” sales (for stay-at-home clothing, for example) and updating advertising to address the vast changes in how people are spending their time during the pandemic, including Zoom work meetings and streaming workouts.
Retailers are boosting digital advertising to help increase online sales and many are slashing prices. Consumers’ email inboxes are flooded with deals for clothes and accessories, and many chains are offering free shipping and extended return policies.
For example, Macy’s is offering the “lowest prices of the season of “40 to 60 percent off.” Calvin Klein is advertising “30 percent off site-wide and an extra 40 percent off sale items.”
Kate Spade is touting “up to 75 percent off” bags, shoes and more. The North Face is offering “25 percent off purchases” with a code at checkout.
Additionally, Nordstrom’s annual spring sale is marketing select items at up to 40 percent off and stating on its website, “We’re in this together. And we’re here to make things a little more comfortable. Explore our top picks for getting cozy, living peacefully and taking care of yourself and the ones you love.”
It’s a tough sell
Economic uncertainty surrounding the pandemic means consumers are cautious about spending on discretionary items. Instead, they’re buying groceries and necessities like home-cleaning products and toilet paper.
Santaniello noticed over the past week that there’s also been an increase in the sale of bicycles, hand weights and yoga mats as gyms remain closed. People are buying workout gear, crafts and some baby/kids’ items to help keep themselves and their children busy during the quarantine, she notes. However, fashion is a tough category right now.
“I think it’s going to be very difficult for the discretionary retailers to really drive conversion unless you’re a Lululemon,” Santaniello says. “I think even Dick’s [Sporting Goods] may be fine. But I worry about pure-play fashion retailers. What are they going to do?”
While not immune to the impacts of the pandemic, athletic apparel and accessories retailer Lululemon’s CEO said the chain is in a solid position to ride out the crisis with $1 billion in cash and no debt.
The company is stepping up digital efforts after closing its physical stores and has stayed connected to customers by offering digital workout classes.
“At our core, we solved sweaty problems for athletes, and we do not believe the current situation will change the trend toward people wanting to live an active and healthy lifestyle,” said CEO Calvin McDonald during the company’s fourth-quarter 2019 earnings call on March 27.
What Are U.S. online sales?
Since about 90 percent of U.S. retail sales take place in physical stores, making up for lost sales online during the COVID-19 lockdown will be an uphill battle.
When the pandemic started, Nordstrom’s online sales were at 35 percent of its total sales. Macy’s online sales were roughly at 25 percent and Kohl’s were also at 25 percent.
“Those are the ones that count,” Kniffen says. “Neiman Marcus probably won’t be with us when this is over anyway. We had question marks about Saks. [As for] J.C. Penney’s, we certainly had question marks even before this. So, Nordstrom, Macy’s and Kohl’s are the ones that will probably be with us when this is over.”
Although these three players were generating online sales of 25 to 35 percent, it’s doubtful they will be able to maintain that during the COVID-19 crisis, much less make up for the sales coming out of physical stores, Kniffen notes.
“Their sales online, I believe, are down from the levels they were coming into this, and the sales in the stores are zero,” he notes.
Experts say if department stores and apparel retailers were already struggling before COVID-19 hit, it’s going to get even worse.
“I’ve been around for a lot of panics and things that went on in the industry,” Kniffen says, noting market crashes and 9/11, among other things. “There has never been an event in my history in retailing, which is more than 50 years long, that sales in discretionary retail specialty stores and department stores went to virtually zero.”
And these retailers can’t make up their sales online “unless it’s something somebody wants to buy.”
So, a chain that sells toilet paper online will still see demand from consumers, but apparel and accessories might be a very tough sell “if people aren’t looking to buy apparel and accessories at any price, through any channel.”
Making the situation even more difficult for discretionary retailers relying on online sales is that some consumers may want to limit the number of deliveries they receive for fear of contamination, or putting delivery workers at risk for what are non-essential items. Also, some retailers are warning customers that orders could be significantly delayed due to the increased safety measures they’re taking.
In the meantime, Gap, Macy’s, Kohl’s, J.C. Penney, Ascena Retail Group, Bed, Bath & Beyond and many other chains have furloughed the majority of their store employees to reduce expenses as sales have drastically declined.
How bad can it get?
Roughly 10,000 stores closed in 2019, and there were 19 significant retailers that filed bankruptcy, Kniffen says.
“And it was the best economy in the history of retailing—at least in my history of retailing,” he notes.
With COVID-19, 2020 could be another record year for permanent retail closures. While Coresight Research projects more than 15,000 store closures in 2020, Kniffen’s prediction is as many as 20,000 to 30,000 stores could shutter.
He points to a caveat, however.
“If we get something that works against this virus—not necessarily a vaccine, because that’s going to take awhile,—but if we found out that hydrochloroquine or chloroquine [or another possible drug] shortens the life of this virus and reduces the severity of it like Tamiflu does for the flu, game over, we’ll go back to work,” Kniffen says.
“The economy recovers. Retailers look a lot better. People won’t go back to stores or the malls in the numbers they were, but they will go back. And so it would be a game changer.”