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Retail Reality and Re-imagining the Other Side of the Crisis

According to the Commerce Department, total retail sales in March, including stores, online, bars and restaurants, fell a whopping 8.7% from February, and 6.1% from a year ago. Unfortunately, the country was effectively closed for only half of the month and a lot of the sales were from front-running store closures. April results will likely be even more dismal. The March winners (year-over-year):

  • Grocery and Beverage Stores +28%

  • General Merchandise Stores (Walmart) +6.7%

  • Building Materials and Garden Supply (Home Depot) +6.9%

The March losers (year-over-year):

  • Department Stores -24%

  • Clothing and Accessories -50%

  • New & Used Vehicles and Parts -26%

  • Restaurants & Bars -26%

  • Sporting Goods, Books, Hobby and Music -23%

  • Gas Stations -18%

Much has been spoken about pent up demand on the other side of the crisis, but no one knows for what and how quickly. However, what is certain is that billions of dollars of retail merchandise is now in the system, much of which has seasonality, and the cash tied up in the inventory will have to be unlocked or there will be limited ability to get new product on the shelves. It is reasonable to anticipate that not only is full-price out the proverbial window for many, but also store closures will be accelerated, especially for those with weak balance sheets, are early stage entrants, or small with little to no scalability. What is also likely is that to sell through the volume of merchandise new formats to help clear it out will emerge. As demand is re-measured and prices adjust accordingly, retailers, and restaurants, will scale operations down, including staff as low as 25%, to cover costs and achieve a manageable break-even from which to re-build. Some retailers will use this period as a reason to pare back locations and re-emerge with stronger ecommerce. Low-overhead "pop-up" clearance events will likely become more prevalent to present merchandise in a manageable and broader footprint, and give landlords an opportunity to supplement lost rent. And watch out for large retailers with strong balance sheets to start consolidating power. Perhaps "don't let a good recession go to waste" really is applicable. Stay safe and healthy.

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