Americans cracked open their wallets more than expected in June, as shoppers began venturing out to malls and diners returned to restaurants. But with a staggering 32 million workers still jobless and the spread of COVID-19 prompting renewed business closures and lockdowns, this shift towards normalcy might be fleeting.
“We’re not going out and buying the things that are wants and not needs,” said Mandy Arnold, who owns the Left Bank Restaurant and Bar with her husband in York, Pennsylvania.
After a three-month closure, during which sales dropped by as much as 80 percent while the restaurant relied on takeout and delivery orders, it reopened about a week ago, but a reimposition of stricter capacity controls just yesterday — including the re-closure of the restaurant’s bar — forced Arnold to be much more deliberate with her spending, she said.
“We’ve definitely lost substantial income,” she said, adding that when she could afford it, she tried to buy from her fellow small-business owners.
Across the United States, retail sales rose by 7.5 percent in June, better than economists had predicted but still a long way from normal, said Camilla Yanushevsky, equity analyst at CFRA Research.
“The road to recovery for retail will be tenuous and take on more of a W-shaped recovery. The resurgence of COVID-19 poses a major risk,” she said.
“Even as we saw governments start to lift restrictions… there’s still a lot of hesitance to go do regular out-of-home activities,” such as dining out, getting a haircut or shopping at a mall, said Tamara Charm, a senior expert who studies consumer behavior at McKinsey & Company. “Consumers are increasingly centering their lives around their homes.”
People are working from home, cooking and eating at home, and throwing themselves into hobbies such as baking, gardening and jogging. In June, this trend boosted sales at furniture, appliance, home-and-garden and sporting goods retailers. Sales at furniture stores, for instance, spiked by 32.5 percent in June from the month prior.
This uneven recovery, with waves of demand and supply chain disruptions, have proven to be a source of frustration for shoppers like Jane Coloccia, who has been trying to buy a new dining room table — since April.
Coloccia, who owns a PR agency in California’s Orange County, said spending more time at home and not eating out prompted her to replace the table, but acquiring one proved to be harder than she anticipated. After an initial shipping delay of nearly six weeks, her table was delivered too badly damaged to use, and Coloccia said it was hard to find anything else in stock. “Other tables I looked at were all being sold out, so I think everybody sheltering at home was buying furniture,” she said.
This run on furniture, gardening equipment, bicycles and the like is coming at the expense of department stores and the bevy of mall-based retailers that had only just begun to reopen. Although clothing store sales jumped by 105.1 percent in June, this was largely a function of pent-up demand as some malls reopened. Apparel is still badly depressed, down 23.2 percent on a year-over-year comparison. Department store sales have fallen by 10.6 percent.
“Retail had already been hurting. This is just an accelerant,” said Will Bauer, owner of ROYCE New York, a leather-goods company based in the New York City suburbs with in-store boutiques at Saks Fifth Avenue and Bloomingdales in Manhattan.
The owner of a leather-goods company said the collapse of international tourism and city dwellers decamping to their second homes had driven sales down by as much as 90 percent.
Bauer said the collapse of international tourism and the flight of his Upper East Side clientele to second homes in the Hamptons or upstate New York had driven sales down by as much as 90 percent. Although he said online sales have grown, it isn’t nearly enough to fill the gap. “We’re definitely hemorrhaging badly.”
Bauer said this has had a spillover effect on his own spending habits. “I’ve been doing almost no shopping for the last two months now, and definitely no big-ticket purchases,” he said.
He added, though, that he did lease a car recently, prompted by an unease about cleanliness of public transportation as well as a realization that his upcoming vacation plans would have to change. “We had a big trip planned for South Africa and a smaller trip to Texas. Now, we’re doing these mini getaways,” he said.
The data indicates that Bauer has plenty of company: Spending on cars is one of the few categories that is up not only on a month-to-month, but also on a year-over-year basis, with a 7.5 percent increase since June 2019.
Another bright spot is e-commerce, which is up a whopping 23.5 percent on an annualized basis. Although the category actually ticked down in June as more brick-and-mortar stores reopened, analysts say it’s reasonable to expect online sales to boom again if stores are mandated to close or if shoppers are too afraid to visit them.
“The fear factor is real. People don't want to get COVID-19, and there’s still a lot of unknowns,” said Joseph Feldman, senior managing director at Telsey Advisory Group.
“We order from Amazon just to reduce our level from interaction. We’ll go to the store to get perishables, but deodorant, shampoo, dog food, sanitizer — everything comes through Amazon these days,” Arnold said.
But online sales still represent only a small fraction of the overall retail business, and a sustained COVID-19 resurgence would likely keep customers out of stores, either by choice or by mandate.
“The inability for people to physically go to a location or be hesitant to be in social proximity to other people will dampen consumers’ appetite to get back to brick and mortar retailing,” predicted Jaime Katz, equity analyst at Morningstar.
Coloccia, for one, said she has curtailed browsing. “I run into a store and just get something I urgently need. I'm not enjoying shopping anymore,” she said.
“Retail sales can improve from existing levels if retail remains open and we don’t go through a second wave of closures,” Katz said.
That’s a big if, Feldman said. “The one wild card now is towards the end of June and into the July Fourth weekend is when we started to see some of that resurgence of COVID-19.”
Although this wasn’t reflected in June’s rise in retail sales, he predicted that the current month could look very different.
“We’re hearing much more about stores re-shutting down, some delayed reopenings. July could go the other way,” he said. “I think we shouldn’t get too excited about this. The coronavirus surge is likely to threaten the rebound or recovery.”