While states across the U.S. are ratcheting up efforts to restart their economies — including retail and service-related businesses — online sales remain robust. But while e-commerce soars, average order values are declining and may reflect the impact of the growing ranks of the unemployed.
Other disruptions are also looming. Ongoing protests across the U.S. over the death of George Floyd in Minneapolis have triggered temporary store closures in several markets.
In response, local municipalities are projecting declining sales tax revenue — which will likely result in budget shortfalls, government layoffs and public services being suspended. All of these developments emphasize the role physical stores play in supporting local economies.
In regard to online sales, data from COVID-19 Commerce Insight (an initiative from Emarsys in cooperation with GoodData) for the past seven days shows online sales for traditional retailers trending up 54 percent in the U.S., which compares to 96 percent year-over-year revenue growth for pure-play e-commerce sites. For fashion and accessories, online sales in the U.S. are up 65 percent year-over-year for traditional retailers, which compares to 117 percent for pure-play sites.
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Globally, results are mixed. In the U.K., online fashion apparel sales are up 45 percent for traditional retailers and 72 percent for pure-play sites. In France, the year-over-year growth for retailers selling fashion apparel is up 42 percent while pure-play sales are up just 1.4 percent. In China, online sales at traditional retailers is down 45 percent year-over-year while pure-play fashion apparel sites show a 65 percent decline.
The data from COVID-19 Commerce Insight also revealed that average order volume remains flat in many regions, but has shown a 20 percent decline in the U.S. And while online sales remain strong, it’s not enough to lift total retail sales. In April, retail sales in the U.S. fell more than 16 percent, and analysts don’t expect May to be much better.
In Hong Kong, the government released data earlier today that showed retail sales falling 36 percent for April. Hong Kong has shown year-over-year declines in retail sales for the past 15 months as protests and then the coronavirus outbreak have taken a heavy toll on business.
For local municipalities in the U.S., store closures relating to the COVID-19 pandemic along with recent protests are eating away at much-needed revenue from sales tax receipts. Last week, for example, state lawmakers in North Carolina convened to hash over the impact of store closures this past spring on sales tax revenue. The total shortfall in the budget is about $4 billion, with the largest portion due to lower sales tax receipts. Next year, the state expects lower income tax to erode the budget as more people are unemployed.
It’s important to note that the impact on sales tax varies from state to state. In Tennessee, COVID-19 closures evaporated over $855 million from the budget. But for New York, the pandemic wiped away nearly $8 billion from the budget in April alone.
On a county level, lower sales tax receipts are having lawmakers scramble for solutions as they realize how dependent their budgets are on retail sales. In North Carolina’s Haywood County, sales tax revenue garners about 20 percent of the general fund. So a 10 percent decline in sales tax revenue would be devastating, local officials said in media reports last week.
In some areas, local economies are being impacted in other ways. Shortfalls at the Metropolitan Transit Authority of Harris County in Texas, for example, could total $100 million, officials said last week after reviewing the impact of COVID-19 as well as record-low fuel prices on the Houston-area oil economy. Services are expected to be cut as a result.
Amid lower revenue, many municipalities are looking toward Washington, D.C., for assistance. In Ulster County, N.Y., for example, officials warned this past week that without direct federal support, “costly reductions” will have to be made.
Looking ahead, even as businesses reopens, the strength of the workforce remains in question while the recovery in the U.S. will vary from state to state. In an IHS Markit report today, Karl Kuykendall, associate director of regional economics, said a “return to pre-pandemic employment levels” is not expected until early 2024.
“Every state will experience significant employment and GDP declines this year given the sudden and deep economic shocks associated with the virus escalation, containment efforts and associated effects,” Kuykendall said in the report. “Nevertheless, the extent of those declines can have a great deal of regional variation with states most dependent on tourism and manufacturing seeing the deepest near-term declines, while states poised to see the least devastating losses are generally more rural and less densely populated.”