Will Retailers Bounce Back from Coronavirus?

A recent article on emarketer questions how retailers will be able to come back from the devastating effects of the Coronavirus pandemic. Outside of essential stores (such as grocery or pharmacies), all other brick-and-mortar retailers have closed for the foreseeable future and even those that have a strong e-commerce presence are not generating enough online revenue to make up for the volume that would come from the brick-and-mortar segment during this time.

Of course, the impact of this will be driven by how long this situation continues. If the brick-and-mortar retail stores remain closed for more than 4-6 weeks, many retailers will have a hard time financially surviving and consumer shopping preferences may adjust to the new norm of shopping online or through retailers like Amazon.

Given the current environment, the article makes the case that this is an opportunity for retailers to test and learn new ways to move through inventory and adapt to new demands in what will be a forgiving time to take some risk. Prior to the outbreak, the expectation was that retail sales would grow about +2.8% up to $5.6 trillion in the U.S.

Overall, I do agree with some of the points of the article. For one, I do think this is a forgiving time for brands to be a little more aggressive with promotions than they typically are to move through inventory and help bring in cash to keep business activity afloat. This has been very apparent as a number of brands and wholesalers have discounted earlier and more significantly than ever in the current season to help drive some demand online to help offset some of the loss from brick-and-mortar. The struggle is that for some sectors, bringing in the traffic needed to even match last year levels will be a struggle even with aggressive discounting. The luxury sector is probably one strong example of this as shown by the hit that the sector took when China was going through the worst of its COVID woes.

For some retailers that don't have a healthy balance sheet, this presents an inopportune time especially. Neiman Marcus was in the news a few days ago for being on the brink of bankruptcy due to over $4 billion in debt that the company still owes. With that said, the company has just started seasonal markdowns at up to 40% off....an activity that normally would begin in late April/early May.