Everybody’s standing a little farther apart — and falling.
A day after President Donald Trump declared a 30-day travel ban that shut the door on Europe in hopes of slowing the spread of the coronavirus, Wall Street tanked again. And even the promise of $1.5 trillion in short-term funding from the Federal Reserve couldn’t stop the selling.
The Dow Jones Industrial Average plummeted 2,352.60 points, or 10 percent, to 21,200.62, a massive drop that left stocks well into bear market territory and down 28.3 percent from their all-time high on Feb. 12.
The selling marked the worst day since the crash of 1987 and was so fierce in New York that, for the second time in a week, it tripped a “circuit breaker” that temporarily halted trading.
Among the hardest hit were Vince Holding Corp, down 31.6 percent to $4.72; Capri Holdings, 23.8 percent to $14.34; RealReal Inc., 22.7 percent to $8.81; Macy’s Inc., 22.2 percent to $7.38; J.C. Penney Co., 18.2 percent to 41 cents; Farfetch, 18 percent to $7.95; Nordstrom Inc., 17.3 percent to $19.88, and Tapestry Inc., 14.6 percent to $15.01.
And if New York was hit hard, markets in Europe were flattened.
The FTSE MIB in Milan fell 16.92 percent to 14,894.44 while the CAC 40 dropped 12.3 percent to 4,044.26 and the FTSE 100 in London lost 10.9 percent to 5,237.48.
Losing more market value in the deluge were Salvatore Ferragamo, down 15.8 percent to 9.56 euros; Kering, 12.3 percent to 384.50 euros; Moncler, 11.4 percent to 26 euros; Burberry Group, 9.7 percent to 13.06 pounds; LVMH Moët Hennessy Louis Vuitton, 8.7 percent to 301.50 euros, and Hermès International, 5.8 percent to 560 euros.
The COVID-19 sell-off has hit the Average Joe’s 401(k) and luxury titans alike. LVMH chief Bernard Arnault and family lost $7.7 billion over the course of the day, leaving them with a fortune of $82.5 billion, according to Forbes’ Real-Time Billionaires List.
On a normal day, any of those declines would be eye-popping, but they were par for the course — or better — in a COVID-19 world.
Although the illness causes mild symptoms in most cases, it can be deadly to the elderly or those with compromised immune systems. So far, 127,863 cases have been confirmed in what is now officially a global pandemic. And while 68,310 have recovered so far, 4,718 have died worldwide, according to a tally by Johns Hopkins University.
Officials globally are looking to slow the outbreak so patients don’t overwhelm the health system, even as warnings from U.S. and European leaders paint dire pictures of millions being infected eventually.
The attempts to slow the spread of the virus has led to so many cancellations, postponements and work-from-home, study-from-home arrangements that they are beginning to be impossible to keep up with. Gucci closed all its production sites in Italy until March 20 to protect its workforce; South by Southwest has been canceled and Coachella was postponed, while the National Basketball Association, National Hockey League and Major League Baseball hit pause. The Metropolitan Museum of Art in New York said it was temporarily closing all three of its locations — although a Met spokeswoman said that, for now, the Costume Institute gala on May 4, fashion’s biggest spring event, remains on even as the museum takes it day by day.
New York State banned gatherings of more than 500 people — impacting Broadway theaters — while New Jersey put the cap at 250.
Trump addressed the nation Wednesday night, cutting off travel of people and goods from Continental Europe for 30 days, laying out government supports for people and businesses and noting the health risk from COVID-19 was “very, very low” for most Americans.
“Our banks and financial institutions are fully capitalized and incredibly strong,” he said. “Our unemployment is at a historic low. This vast economic prosperity gives us flexibility, reserves and resources to handle any threat that comes our way. This is not a financial crisis, this is just a temporary moment of time that we will overcome together as a nation and as a world.”
Earlier in the COVID-19 outbreak, Trump shut down the U.S. border to travel from China, a step that some have said helped slow the disease.
Trump described the U.S. response, which also included an $8.3 billion emergency funding bill, as “the most aggressive and comprehensive effort to confront a foreign virus in modern history.” Illnesses, however, are not usually ascribed nationalities and COVID-19 is widely perceived as a global problem.
If the idea was to calm an edgy country and soothe a worried market, Trump came up short. On Thursday, the feel of a crisis was in the air.
Certainly the Federal Reserve’s massive program to put more money into the system stood out. “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” said the New York Fed.
That the massive program did not stop the selling on Wall Street for long was telling.
“There’s obviously a lot of fear,” said Simeon Siegel, managing director and senior retail analyst of BMO Capital Markets. “What we know thus far is that there’s so much we don’t know. The whole world is learning as we go.”
That includes just how long containments, cancellations and work-from-home mandates around the world will last. On a near-term basis, Siegel said, stocks will continue to price in new risks every day.
Retail or travel-related stocks could be hit hardest in the near term, while consumer staples and at-home experience companies will have more staying power, he said.
“If consumers are stuck at home, they’re going to have to ask themselves, ‘Do I really need a new T shirt?’” Siegel said. “Things like Coachella being canceled, that triggered consumers to buy a type of apparel; sporting events inspired a whole industry of clothing.”
From top to bottom, fashion is just feeling its way forward.
“It’s a day at a time,” said Steven Kolb, president and chief executive officer of the Council of Fashion Designers of America.
“It’s a scenario that no one could have predicted,” he said. “We kind of have to be resilient, we have been through down times before post 9/11 and the 2008 recession. The industry rebounded and I think we have to just be resilient and strong and be creative in how people run their businesses.”
In Europe, the handwringing was over public health, stocks, consumers, the virtual shutdown of Italy and also the new travel restrictions keeping Europeans from entering the U.S. European Commission President Ursula von der Leyen and European Council President Charles Michel condemned the American travel ban.
“The coronavirus is a global crisis, not limited to any continent and it requires cooperation rather than unilateral action. The European Union disapproves of the fact that the U.S. decision to impose a travel ban was taken unilaterally and without consultation,” they said in a joint statement. “The European Union is taking strong action to limit the spread of the virus.”
Many leading luxury, fashion and beauty firms in Europe and elsewhere already had business travel bans in place even before Trump’s announcement.
Cutting transatlantic travel, even one way and only temporarily, is a blow to globalization, however. The International Air Transport Association (IATA) said that in 2019, there were around 550 flights a day scheduled between the United States and Europe, carrying an average of 125,000 travelers every day. The group called on governments to respond quickly to the financial frailty of airlines in light of the U.S. travel restrictions.
“These are extraordinary times and governments are taking unprecedented measures. Safety — including public health — is always a top priority. Airlines are complying with these requirements. Governments must also recognize that airlines — employing some 2.7 million people — are under extreme financial and operational pressures. They need support,” Alexandre de Juniac, director general and chief executive officer of IATA, said in a statement. “Suspending travel on such a broad scale will create negative consequences across the economy.”
IATA estimated on March 5 that the crisis could wipe out some $113 billion of revenue. That scenario did not include the severe measures that the U.S. and other governments — including Israel, Kuwait and Spain — have since put in place.
IATA underlined that the World Health Organization advises that any travel restrictions should be short in duration and should be reconsidered regularly as the situation evolves.
Europe, which is already in danger of tipping into recession, can’t absorb too many more setbacks.
Announcing a package of monetary policy stimulus measures, European Central Bank President Christine Lagarde described COVID-19 as “a major shock” to the growth prospects of the global and euro area economies. “Even if ultimately temporary in nature, it will have a significant impact on economic activity,” she said, calling for an “ambitious and coordinated fiscal policy response” from governments and all other policy institutions.
Meanwhile, French President Emmanuel Macron on Thursday ordered the closure of schools and universities throughout the country starting Monday and urged businesses to allow employees to work remotely when possible. He also promised a package of economic assistance at both the national and European level.
COVID-19 and the attendant stock-market crash and stresses have also shone a bright light on hidden weaknesses in the economy and financial system, such as debt levels, that could be brought to the fore by the crisis, economists said.
U.S. banking officials have responded so far by reducing the benchmark interest rate by 0.5 percentage points. But the increase in debt, particularly corporate debt, relative to the economy could pose a concern. In a financial stability report last May, the Federal Reserve wrote that “growth in business debt has outpaced GDP for the past 10 years, with the most rapid growth in debt over recent years concentrated among the riskiest firms.”
“This is a bit of a unique event for economic policy makers,” said Gary Richardson, economics professor at the University of California, Irvine. “The central bankers, and the people who typically manage the economy, don’t have a clear solution and a clear historical analogue.”
Consumer debt — including student loans, vehicle loans and credit card debt — has also grown, hitting $4 trillion as of May, a 5 percent increase from a year earlier, according to the Fed.
“These numbers show how vulnerable firms and households are to really big declines in asset values, and how consumers might have to cut back their spending right now when they feel less wealthy,” Richardson said.
The new travel brand on Europeans will also hit consumer spending.
“A blanket ban of travel may do little to prevent the virus from spreading, but it may scare people,” Richardson said. “And from the perspective of retailers, this is very dangerous. In the past, people have, when they’re faced with lots of uncertainty, tended to delay purchases of durable goods [like] cars or clothes.”
The ban on Europeans’ visits to the U.S. will bear down particularly hard on the travel retail sector, which has already been laid low by COVID-19. Registering the expected impact, travel-retail operator Dufry’s stock plummeted 41.2 percent on Thursday to 27.36 Swiss francs.
The Basel, Switzerland-based retailer that runs duty-free and duty-paid shops in airports, cruise ships, seaports, railway stations and key tourist areas, is a bellwether for the travel-retail industry, as it’s the world’s largest operator in the channel and a publicly quoted pure player.
On Thursday morning, the group published its 2019 results, and said sales grew 1.9 percent in reported terms to 8.85 billion Swiss francs, or $9.33 billion.
“At the beginning of 2020, we saw a further acceleration of the business,” Dufry said. “Then COVID-19 impacted our operations where we have exposure to Asian customers, as well as in locations directly impacted by the phenomena.
“We have immediately implemented several worldwide initiatives to accelerate sales; to secure cash generation through renegotiations of rents and with brands, and to reduce costs through actions at third-party cost levels and with employee reorganizations,” Dufry said. “Currently, it’s still challenging to estimate the impact for the full year.”
Meanwhile, other companies that operate travel-retail businesses in their diversified portfolios saw their stocks weaken, as well, although to a much lesser extent.
In Europe, this included Lagardère — which operates Lagardère Travel Retail — whose stock ended the day down 15 percent to 10.45 euros. In South Korea, Lotte Corp., which runs Lotte Duty Free, closed down 6.5 percent to 27,150 South Korean won. Hotel Shilla, owner of The Shilla Duty Free Shop, saw its stock decline 3.7 percent to 79,000 South Korean won. And stock for Shinsegae, the parent company of Shinsegae Duty Free, posted a 3.8 percent decrease to 241,500 South Korean won.
Travel retail is big business, worth $79 billion in 2018, including $31 billion in cosmetics and fragrance products, according to Generation Research’s latest yearly statistics.
COVID-19 leaves a huge hole, not just in the travel business, but fashion in general. Retailers often rely on sales from so-called gateway cities where travelers land. And more than that, they need people to want to come to their stores and feel safe and ready to buy.
As more people work from home or just stay in to binge Netflix instead of hitting the mall, any retail hopes for 2020 will drift further off. Research shows that people started to pull back from retail in earnest last week, when COVID-19 news took over the airwaves. That has retailers who were already worried about bringing in goods from China given the factory shutdowns there, worrying now if people will come into the stores to buy what they do have.
After a weaker-than-hoped-for 2019, this was a year that many retailers were depending on for a comeback, or to fund reinventions that will help them navigate new consumer habits and stay relevant.
If shoppers stay home and log on to buy, it might help e-commerce, but that might not replace the brick-and-mortar sales lost and retailers will have to work all the harder to connect with consumers.
At the moment, it’s a waiting game – a nervous one – as retailers watch traffic fall and try to decide whether to hold on in hope it picks up soon, or they should start slashing prices now.