February U.S. retail and food service fell 0.5 percent in February compared with seasonally adjusted figures from January, according to the Census Bureau. And it wasn’t until the end of the month that consumers started really feeling the COVID-19 jitters.
Sales at apparel and accessories specialty stores fell 1.2 percent while department stores dipped 0.2 percent. Nonstore retailers, including e-commerce players, rose 0.7 percent and was one of the few categories to increase.
Joseph Brusuelas, chief economist at middle-market consulting firm RSM, said the retail sales report was “foreshadowing the Great Reset.”
“This data, which will be one of many reports going forward that show the slowdown in the economy, is why the federal government needs to engage in bold and persistent action to put a floor under the American economy in general and for small and medium businesses in particular,” Brusuelas said.
Washington is getting more aggressive. The Federal Reserve has already cut interest rates sharply, bringing its benchmark rate down to near zero, and is taking other steps to bulk up the lending market. And the administration of President Trump said it backed a plan to send checks directly to Americans to help shore up their finances and is asking Congress for an aid package worth $850 billion.
Wall Street was comforted — at least for the moment — and the Dow Jones Industrial Average traded up 1,048.86 points, or 5.2 percent, to 21,237.38. European markets, where the immediate picture is even more dire with Italy, France and Spain locked down and Germany approaching that point, generally closed up more than 2 percent.
Even so, many retailers were still getting pushed lower as investors worried about consumer spending.
Among the decliners were G-III Apparel Group, down 30.6 percent to $7.32; Destination XL Group, 29.2 percent to 29 cents; Capri Holdings, 15.6 percent to $8.15; Guess Inc., 15.4 percent to $6.33; Kohl’s Corp., 13.9 percent to $17; L Brands Inc., 13.1 percent to $10.13; Fossil Group Inc., 11.3 percent to $3.15; Simon Property Group Inc., 10.5 percent to $58.86.
Certainly, the pain will only get worse from here. Retailers of all stripes — from Nordstrom to J. Crew to Levi Strauss — have closed their stores to help slow the spread of COVID-19.
There is evidence that at least some of those sales are going online.
E-commerce analytics platform Contentsquare said time spent on fashion retailers’ web sites has risen 14 percent over the last week, while online apparel sales have increased by 7 percent. (Sales of underwear and lingerie are up 16 percent, while jewelry is up 14 percent and luxury accessories sales are ahead 6 percent).
But with e-commerce accounting for just 11.4 percent of total retail sales, before COVID-19 sent people into their homes, the web will not be able to pick up all the slack as brick-and-mortar stores go dark, although retailers are certainly trying to get what they can from their digital businesses. And Amazon is ramping up, fast, with plans to hire 100,000 additional workers to keep its mammoth business humming.
Retailers struggling with heavy debt loads will just have to struggle all the more.
Moody’s Investors Service noted that 77 percent of the $24 billion in outstanding retail and apparel debt that it rated as Caa1 and lower was concentrated in six companies: J.C Penney Co. Inc., Neiman Marcus Group, Rite Aid Corp., J. Crew Group Inc., Ascena Retail Group Inc. and Academy.
Debt rated in the Caa category is deemed to be of “poor standing” and subject to “very high credit risk,” according to the debt watchdog.
“The retail and apparel industry is now looking at a much more embattled landscape amid supply chain disruptions, declining demand, mandated curfews, store closures and dislocation in the financial markets related to the coronavirus pandemic,” Moody’s said. “All of these factors suggest more defaults in the months ahead, especially for the weakly positioned that are highly leveraged, lower rated and less diversified.”