November 4, 2024

7meel

The art of Fashion

Fashion vs. the Economy: Retail Faces Double Dip

Click here to read the full article.

The economic roller coaster isn’t over — and fashion can just hold on as tight as possible. 

As horrible as the first phase of the coronavirus crisis was, it was relatively straightforward (and straight down). Almost everybody was forced to shut down and go home, leading a projected contraction of more than 30 percent in second-quarter gross domestic product and an unemployment rate of more than 11 percent. 

More from WWD

Even though the initial shock passed, that sinking feeling hasn’t gone away. No one knows what’s coming next. For retailers and brands, that means adjusting their business models and conserving cash, fingers-crossed they make it to the other side of the open-ended economic crisis. 

The coronavirus is the driving force behind the chaos, but it’s not the only variable. The reactions to the pandemic on the part of federal policy makers, consumers and brands will also factor into just how rough of a ride it is for the rest of the year and into 2021 — with most companies of almost every strip pretty much ignoring the rest of 2020 (if they can) and plotting their strategies for next year, when the hope is there will be at least some recovery.

Beyond the case count, which is spiking in the key markets of Texas, Florida and California, the most important factor to watch could be the stimulus package that’s still forming in Washington. 

So far the federal government has carried the economy with loans to businesses, the Paycheck Protection Program that helped keep workers on the job, expanded unemployment benefits and more. The trillions of dollars have helped prop up the stock market, businesses and spending. 

“Consumers right now, if anything, are awash in cash because they got the stimulus checks and anyone who’s unemployed has gotten extra benefits, so there’s a lot of money kicking around right now,” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics. 

But many of the key support programs from Washington are set to expire soon, so lawmakers are expected to pump more money into the system, with the projected size of the next aid package varying widely from $1 trillion to $5 trillion.

“If we’re not too far from the worst of it, then you can probably get by on $1.5 trillion or $2 trillion,” Hoyt said. “If we were to get [hit by the virus] so badly that we had to significantly shut down again, then, who knows? You might well need more than that.

“It’s hard to see things improving more than very gradually until the virus is materially less of an issue, which means herd immunity, which no one seems to think we’re very close to, or an effective treatment or a vaccine,” Hoyt said. “Almost any economic outlook has to be contingent on a very heroic assumption about when you achieve one of those three things.”

In the meantime, economists are watching case counts as closely as they watch consumers and factory orders, while Wall Street investors are keyed into Washington in case the lawmakers turn off the spigot. 

“The economy is going to move with the virus, the stock market is going to move with the government,” said Paul Nolte, partner and wealth manager at Kingsview Partners, which has $1.5 billion under management. 

“This is a health-care issue and no amount of money is going to fix that until we get the virus under control and no one knows when that’s going to be,” Nolte said.

The reaction to the virus is evolving, with cities and states testing how much they can loosen social distancing restrictions and still keep COVID-19 in check.

“I don’t think we’re going back to all the way off to where we where we were in March, where it was a complete shutdown,” Nolte said. “So from that perspective we’ve learned something.”

Stores that have opened back up might have to close again, but perhaps can continue with curbside pickup, which has become a sudden growth avenue for retail. That trickle of business, along with the booming trade in e-commerce, could help many stores muddle through.

“We may be in a very slow, recessionary environment for a while,” Nolte said. “Depression — we probably avoided that, but I think we’ll have, depending on the state and area, a ‘rolling recession’ where you have these shutdowns for a month, where you back off of different things.”

“Rolling recession” sounds better than depression, but it’s still not good and could be accompanied by a new and much more bearish outlook from shoppers if the pandemic starts to feel less like a short-term disruption and more like a long haul.

Consumer confidence tanked with the shutdown this spring, but Erik Lundh, senior economist at The Conference Board, noted that while people were feeling “really pessimistic” about their immediate circumstances, they were “optimistic about the future.”

The Conference Board’s Consumer Confidence Index stood at 98.1 in June, down from 130.7 in February. But it’s the light at the end of the tunnel that’s maintaining the measure of shopping sentiment, made up of The Present Situation Index, which is down to 86.2 from 165.1 in February, while the Expectations Index is off just mildly, to 106 from 107.8 in February.

But as the virus continues to spread and case numbers go up, consumers who managed to push on thinking things were going to get better soon could buckle. 

“It’s like getting hit once in the face — you’re sort of on your feet, and then you get hit again and you go down,” said Lundh, noting that resurgence and additional lockdowns could be more damaging to consumer confidence than the initial shutdown.

“That supply shock that was initially felt at the beginning of the crisis is going to migrate over to the demand side,” he said. “You’re going to see a situation where consumption doesn’t recover and there’s going to be a lack of income, a lack of consumer confidence that’s really going to manifest itself in the economy later in the year.”

The Conference Board is predicting a “double dip” in the economy this year that will work out to a 7 percent drop in GDP overall.  

That means retailers pinning their hopes on the holiday season could face even a tougher way forward, with consumers becoming more cautious just when they might have splurged. 

Already there has been a wave of bankruptcies, including Neiman Marcus Group, J.C. Penney Co. Inc., J. Crew Inc., Brooks Brothers, Lucky Brand and RTW Retailwinds. Any companies holding on hoping for the holidays to save them might just be out of luck if the virus worsens with cooler weather in the fall. 

Stronger companies are doing what they can now to stock up on cash and reorient to the new reality while looking for ways to take market share even as the market itself shrinks. 

Levi Strauss & Co. said it was cutting 15 percent of its corporate workforce, or 700 positions, creating $100 million in annual savings and helping it to continue to fund the parts of the business that are performing best, such as e-commerce. PVH Corp. is streamlining North American operations, exiting 162 outlet stores in its Heritage Brands Retail business and reducing its office workforce by about 450 positions, or 12 percent. 

Both moves acknowledged that times have change
d and showed a willingness to keep up with that change, however painful. 

Consultant Michael Brown, a partner in Kearney’s consumer practice, said companies are going to have to make hard decisions to build a “fit for the future organizational structure.”

Brown said companies have to learn the lessons of COVID-19, examine how it’s impacting their businesses and start to eliminate assets that are no longer needed and be ready for the future.

“We’ve got to figure out, how do we get through the potential implications [the virus] is going to have on the Christmas holiday?” he said. “In the current situation, executing a holiday in physical stores at the scale and volume that we have in past years is going to be virtually impossible.” 

That has retailers trying to do it all — navigate an uncertain economy, hold on to cash, appeal to a new consumer mind-set and really become much more digital while nearly every aspect of the industry is dramatically shifting.

“This was never going to be a one-size-fits-all across-the-country recovery,” said consultant Matthew Katz, managing partner in SSA & Co.’s retail and consumer practice. “This was always going to be and will continue to be a recovery of stops and starts. You’re dealing not only with employee safety/municipal regulation. You’re also realigning with consumer psyche about, ‘Is it safe to engage?’ And you’re fighting against the new-found e-commerce freedom that many consumers had not yet enjoyed. Instead of four months of store closures, we’ve experienced seven-years’ [worth] of digital acceleration.”