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Home WORLD

Retail sales plummet to record lows

bySam Mukwamu
May 18, 2020
in WORLD
Reading Time: 5 minute read
Retail sales plummet to record lows

Source: Bloomberg

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Retail spending in the United States fell a record 16.4% from March to April, the second straight record decrease in Americans’ retail spending after the first, in March, saw retail spending fall by 8.3%. 

This decline marks the largest since 1992, when data first started being collected.

The report also shows that retail spending is down 21.6% compared to last year, highlighting the extent to which retailers have been impacted by nationwide stay-at-home orders and business closures as a result of the coronavirus outbreak. 

Spending in all categories declined, with non store retailers being the exception, as e-commerce giants like Amazon witnessed a spike in demand. 

Clothing stores had the sharpest decline, with a 78.8% drop from March and an 89.3% drop from last year. Sales of electronics and appliances were down 60.6%, while home furniture sales fell 58.7%. Grocery store sales had initially increased in March due to panic buying, but fell 13.1% in April.

Beyond declining sales, the retail industry has had to deal with a significant number of layoffs, with over 2.1 million jobs being lost in the retail sector, according to the US Bureau of Labour Statistics. 

Problems in retail before the pandemic

For many traditional retailers, the coronavirus pandemic only compounded their struggles, with many already carrying enormous debts and trying to keep pace as consumer preferences gravitated ever more towards online shopping. 

Last year, over 9,300 major US retail stores announced closures, and with revenues drying up, more retailers are being pushed towards bankruptcy. 

On Friday, JCPenney, one of the county’s largest apparel and home retailers with over 800 stores and nearly 85,000 employees, filed for Chapter 11 bankruptcy protection. The company had been facing financial losses and declining sales for years.

“Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come,” said CEO Jill Soltau in a statement.

The 118-year old department store chain plans to restructure during bankruptcy, with 70% of its lien lenders supporting the restructuring plan. The company has received US$900 million in debtor-in-possession (DIP) financing from existing lenders. 

JCPenney’s bankruptcy filing follows other large retailers like Neiman Marcus and J.Crew, both of which have also filed for bankruptcy in recent weeks.

The coronavirus pandemic and the subsequent economic fallout has caused a spate of bankruptcies beyond just the retail sector. 

According to the American Bankruptcy Institute (ABI), commercial Chapter 11 filings in April increased by 26% compared to last year.

“The extraordinary measures taken by Congress and the Administration to assist individuals and businesses weather the initial economic shock caused by the pandemic have likely staved off bankruptcy filings to date,” said ABI Executive Director Amy Quackenboss in a statement. “As financial challenges continue to escalate amid this crisis, bankruptcy is sure to offer a financial safe harbor from the economic storm.”

The retail industry could be further impacted by the bankruptcies of other large department store chains. 

Before the pandemic, malls across the country were already closing down as chains like Macy’s and Sears closed their stores. Without the drawing power of these anchor stores, other stores were similarly forced to close.

With more and more stores likely to close in the retail sector, mall-based-businesses could die out entirely, causing the number of zombie malls dotting the country to further increase.

Online retailers thrive

Meanwhile, online sales were up 8.4% as the number of people staying indoors has led companies like Amazon to thrive, though smaller online retailers have struggled to keep up with demand.

Along with Amazon, retail chains that also sell groceries, like Walmart and Target, have seen their shares rise during the lockdown. Retailers, sensing a massive opportunity to capitalize on the demand for groceries, have been expanding their online sale operations and ramping up delivery operations. 

While some stores have begun opening, it’s still unclear whether retail stores will make a comeback. Consumer spending could drastically reduce due to increasing unemployment, further pushing consumers to only spend on essential items.

Uncertainty also exists over whether consumers will even want to return to retail stores or simply continue to rely on online services.

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