How long does it last and how bad does it get?
Those are the vital questions now — for the nearly 10 million Americans who filed for unemployment in just the last two weeks, the thousands of stores that are closed, the hordes of landlords and suppliers who aren’t getting paid and anyone struggling with the coronavirus.
There are no easy answers, but there is one benchmark — China — that retailers and brands are looking to as they guess how long it will be before the doctors signal the all-clear for companies to turn the lights back on.
“We’re going to use the China model because I think it’s the best model we have. It’s also the one that makes the most sense to us,” said Emanuel Chirico, chairman and chief executive officer of PVH Corp., on a conference call with analysts Thursday. Chirico, who is recovering from COVID-19 himself and had only mild symptoms, conducted the call from his living room — a sign of the new rhythms everybody is having to adopt.
While others have pointed to China and its now-budding recovery, Chirico gave a detailed look at that model (and noted that Tommy Hilfiger and Calvin Klein parent PVH was performing strongly as the COVID-19 crisis hit, is cutting every possible expense and is positioned to win when the dust settles).
“In China, we came into December, January comping up 5 percent, business very strong,” the ceo said. “The last week of January through February when the stores closed and there was all the disruption in China, we saw the business go down to minus 85 percent, 90 percent. Basically, everything was being done digitally. And beginning [at the] end of February, business opened.”
In March, PVH’s China business came back to about 65 percent of what it would have been, and closer to 70 percent by the last week of the month. In the major cities such as Beijing and Shanghai, the lack of tourism has hindered the bounce back.
Chirico is looking for PVH’s business in China to be back to 80 percent of what it would have been this month and then move to 85 percent to 90 percent in May.
“I think that’s a prudent way for us to plan the way North America will come back as well,” Chirico said. “I don’t think when stores open that the first thing consumers are going to do is run out to buy apparel and accessories and get online and go into stores immediately. I think it’s going to be a ramp-up as that happens, as people get more and more comfortable with the situation.”
That timeline would have the U.S. starting to bounce back in May — which Chirico said would be the soonest stores would likely reopen. The money-making flagships in gateway cities like New York that rely on tourism would just limp along at first.
Even if life returns to something resembling normal next month, that means most consumers essentially went home the last days of winter and will re-emerge with spring in full bloom.
“Spring/summer inventory is the biggest issue that everybody is dealing with,” Chirico said. “Goods are coming in, goods have been ordered…We’ve lost at least six to eight weeks of spring selling, and spring selling in the heart of the season.”
Asked how promotional fashion would become as brands cut prices to move inventory, Chirico said “that’s the big question.”
“A lot will depend on what the off-price promotional market looks like, about how aggressive we would have to be in order to clear goods,” he said. “If it’s too aggressive, we will pack and hold core [merchandise] that doesn’t have a big seasonality to it.”
Chirico said the company could use the strength of its balance sheet, which is carrying $1.2 billion in cash and credit availability, to carry “goods for six or nine months to get to spring next year.”
“That model has been used extensively by the off-price channel, the T.J. [Maxx]s’ and the Ross’ and I think we’re going to have to take a lesson out of that and maybe have to park some inventory for a period of time,” he said. “Interest rates are very low, and we’ll take advantage of that as we go forward.”
Getting back to business is just the first step, though.
Brands are then going to have to navigate a consumer landscape that’s been completely remade by the COVID-19 outbreak. A recession seems to be a foregone conclusion. The question is how long it lasts and how much damage it does to the shopping psyche.
The single most important economic factor when it comes to spending is employment — people don’t generally spend if they don’t have money coming in or are nervous that they’ll lose their jobs.
And any sense of stability in that area is out the window: Last week alone, the first-time claims for jobless benefits shot up an eye-popping 6.6 million, including retail workers.
“This marks the highest level of seasonally adjusted initial claims” in the history of the U.S., the Labor Department said in releasing the numbers Thursday. The unprecedented surge follows a better than 3 million increase in claims the week before, which itself was an off-the-chart jump.
The weekly claims figures aren’t broken down by sector, but surely many retail workers are among those turning to the government as everything but essential businesses in many parts of the country were shut down last month and employees were sent home to slow the spread of the coronavirus.
The Labor Department said in its report on jobless claims, “Many states continued to cite the health-care and social assistance, and manufacturing industries, while an increasing number of states identified the retail and wholesale trade and construction industries.”
And more retail workers will be seeking to fill a new hole in their household finances soon, as many of the big retailers that closed their stores but kept paying associates started turning to furloughs this week. That technically keeps workers on the payrolls, but also allows them to apply for unemployment, which is generally available to people who want to and are ready to work, but have no income coming in.
Macy’s Inc. said it would furlough most of its 125,000 employees as it seeks to conserve cash, while getting what it can from online sales, to stay afloat. And the department store operator has plenty of company. Neiman Marcus Group, J.C. Penney Co. Inc., Gap Inc., Kohl’s Corp., Ascena, RTW Retailwinds, Urban Outfitters Inc., L Brands Inc. and Cato Corp. are among the other industry players furloughing workers.
Workers on unemployment receive a large portion of the money they made previously to hold them over or allow them time to find new work. In Europe, governments are taking a different approach, paying the salaries of workers if companies don’t resort to layoffs.
Both systems essentially shift responsibility for the paychecks of retail workers to the state amid the COVID-19 shutdown.
After approving a $2 trillion aid package to help prop up the economy, including loans for small businesses and expanded benefits for laid-off workers, Senate Minority Leader Charles Schumer (D., N.Y.) described it as “unemployment compensation on steroids.”
“Every American worker who is laid off will have their salary remunerated by the federal government so they can pay their bills,” he said.
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