A general view of department store Debenhams in Central London, Britain, 13 April 2020. Debenhams, that was founded in the 18th century, recently filed for fell into administration and also closed its 142 UK stores, in line with government guidance on coronavirus. Britons can only leave their homes for essential reasons or may be fined, in order to reduce the spread of the SARS-CoV-2 coronavirus which causes the Covid-19 disease.Coronavirus in Britain, London, United Kingdom - 13 Apr 2020

New survey data from PwC paints a dismal picture of the business landscape with more layoffs looming on the horizon and consumers — whose spending power represents two-thirds of U.S. GDP —remaining stuck at home, and “in limbo.”

The dim outlook is buttressed by an economic report from the International Monetary Fund earlier this week that forecasts the global economy will “contract sharply by negative-3 percent in 2020, much worse than during the 2008-09 financial crisis.”

The IMF said in a “baseline scenario” that assumes COVID-19 fades sometime in the second half of the year while containment efforts can be “gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support. The risks for even more severe outcomes, however, are substantial.”

The IMF’s dire outlook for this year is based on the severity of the economic decline, which is why financial executives are increasingly worried. PwC’s most recent survey of chief financial officers found that 26 percent of respondents are anticipating layoffs, which the company said was “a marked increase from two weeks ago” when that number was 16 percent.

Moreover, the ​financial impacts of COVID-19 “now rate as the top concern” among the cfo’s polled, with 75 percent of respondents citing the pandemic’s unprecedented effects on operations as well as liquidity. The pandemic is also having a negative impact on shoppers, perhaps with permanently lasting effect, PwC noted in a separate, but related report.

In that research, PwC found households are “in limbo” with 49 percent of respondents avoiding trips outside and with 50 percent of those polled working from home partially or entirely. And if they do venture outside, 42 percent of respondents are avoiding public transportation.

In regard to consumers’ most pressing concerns over the impact of COVID-19, the top issue is the economic cost at 78 percent followed by the human cost at 71 percent. There were some positives reported, though: as consumers are spending more time at home, 28 percent said they are picking up new hobbies while 50 percent of respondents are trying new brands and products. Overall, though, the current state of the consumer mindset has been transformed by the pandemic.

PwC said the “twin public-health and economic crises are driving changes in consumer behavior that could have long-lasting effects.”

In a webinar earlier this week, PwC executives discussed the implications of the consumer data and went into greater detail about the findings from the cfo research.

PwC said in a statement prior to the webinar that 82 percent of cfo’s are now focused on reining in costs — up considerably from two weeks ago, as they continue to deal with the economic impact of the COVID-19 pandemic.” The report also noted that 67 percent of survey respondents “are considering deferring or canceling planned investments” and that most “companies are looking to contain costs by halting investments in facilities and capital expenditures, IT, workforce and other areas.”

Tim Ryan, PwC U.S. chair and senior partner, said on the call that in terms of overall sentiment, “we are clearly seeing a turning point in this cfo survey around earnings, investments, and, frankly, when we bounce back.”

“But not that we’re seeing a turning point; we’re clearly in a recession at this point, and cfo’s are trying to figure out how long and how deep the recession is, and they’re struggling with how do you provide guidance when you simply don’t have the answer,” Ryan said. 

Ryan went on to say that another important theme emerging is that “some industries will make permanent shifts as we come out of the COVID-19 crisis, whenever that is. And the reality is many industries that were already under pressure to change their business models are seeing the COVID-19 crisis accelerate that.

“So industries such as retail, banking, insurance, manufacturing, higher education, and even our industry, professional services, were already seeing changes afoot, and the COVID-19 crisis is accelerating many of those changes,” he added.

Amity Millhiser, U.S. vice chair and chief clients officer at PwC, addressed portions of the cfo survey that dealt with the supply chain. Millhiser said there was an “even split” between respondents whose companies are considering “making changes to their supply chain versus those who aren’t, and I think that reflects the fact that on the one hand, as companies look to China and manufacturing coming back online, they have more confidence than they did [in the prior survey] around the near-term strength of the China supply chain.”

“But on the other hand, as companies are realizing that as they have taken steps in recent years to really optimize their supply chains, this crisis has highlighted where their supply chains are more fragile, especially around the dependency on key suppliers and geographies, and that is causing companies to have more intense conversations with their suppliers and look at how they can protect their supply chains going forward,” Millhiser said.

The vulnerability of the supply chain — especially for apparel and footwear — was first revealed with the trade war and tariffs with China. Brands ended up shifting their sourcing and in some cases, passed on higher costs (related to the tariffs) to the consumer. But when COVID-19 struck, it sent the retail supply chain into disarray. Companies had to find workarounds as factories closed in China, and plans to digitalize their supply chain were accelerated.

Then the “remain in place” orders were issued in Europe followed by the U.S., where retail sales ground to a halt as stores closed. Spending shifted to online, but no one was buying apparel initially, although that has shifted this week.

As the retail industry eyes a recovery, Steve Barr, PwC consumer markets leader, said on the webinar that there are lessons from the Great Recession that can help retailers today. Barr said if “we’ve learned anything from the Great Recession in 2008, it was those [retailers] that were best able to adapt their business models to meet the consumer where she or he is were the most successful.”

Barr went on to say that “we know of many stories in the last decade where retailers were able to transform themselves, whether that be through product offerings or collaborations or bringing in-store experience or otherwise.”

“For me, I believe this is an opportunity for many retailers to actually accomplish and accelerate the path they were on to meet the consumer where they are,” he said.

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