US Retail Recovery Forecast
A great deal of discussion has been had about the recovery curve to be expected in retail and hospitality. Will it be a V curve, an L shape or a NIKE Swoosh? Truth be told, you can make it look like whatever you want it to be to fit your narrative. If you want to make the curve look more like a V, you elongate the time horizon on both ends. To make it look like an L, you shorten the time horizon.
Another way to play with the curve is to look at it as a quarter to quarter growth rate or month to month. That shows the volatility. Further, you can also go year to year which is better than most as it allows you to compare the same dates year to year. In normal times, IHL would look at things year to year. This approach generally provides the most insight on how the economy is actually working. But here is the problem with that view right now. If we compare March – May this year against 2019 levels, there will be giant drop. And if we compare March – May of 2020 to 2021 we should hopefully see a sharp increase. But at the end of the day it doesn’t pass the “so what, test”. It doesn’t really answer the most important question of recovery which is…When do we get back to where we were before COVID-19? Because that is recovery.
And the answer to that varies greatly by segment. This is our current forecast.
For retailers in the Food, Drug, Convenience, and Mass Merchants segments (Orange Curve), COVID-19 has been a huge boost – spike in March and April and then higher levels overall for the year. More stores will be built and more of the income from consumers will go to these stores going forward but this should always be above 2019 levels.
The second group is Department Stores, Specialty Hard Goods and Specialty Soft Goods (Green Curve). This the group that will have the most store closures among large chains and will take the longest to get back to 2019 total sales numbers. Our current forecast is it will be Q1 of 2023 before the total value of these combined segments will get to the level of 2019. As well this mix will be very different when we get to that even point. We do not expect that Department Stores will get back to 2019 for at least 5 years or perhaps ever again. It will be Specialty Hard Goods and Soft Goods retailers that will make up the slack to get to even.
The third group in this graph is Restaurants. We have seen drops as far as 80% in some categories in March and April, however, there is great pent up demand and many restaurants have been able to step up their delivery and pickup so well that their losses are fewer than 20% so far. For restaurants we are going to see a tremendous amount of closures for smaller companies in 2020 but many new ones will open in 2021. Echoing the words of Professor Scott Galloway, right now has never been a worse time to be in business as a small company in over a decade. But late in 2020 and going into 2021 there will never be a better time to start a new business. In total, we expect to see the category get back to 2019 levels by the end of 2021. Large chains that survive will gobble up share in 2020/2021 and then that will be challenged going forward after that as more independents and smaller chains take back share.
Combining all these segments, we will see a high single digit loss in 2020 and then we will slowly see that recovering to 2019 numbers when we turn the new year of 2022.
Now a little background on the assumptions used here. We are not factoring in a second shutdown due to COVID. It’s not that we are discounting the possibility of a second wave of COVID but rather the belief that we are going to have to learn to live with the risks and utilizing therapeutics for those that get infected. In other words, if there is a second wave, we do not expect the same lockdown behavior we have seen to date. Second, this excludes gains in pure play eCommerce (but includes those eCommerce gains within retailers that have a brick and mortar presence). With pure play included, this may shift the recovery to 2019 levels forward by one quarter but not more than that as too much of eCommerce is part of companies with physical locations. Finally, this forecast assumes that gas prices will stay below $2.75 average per gallon nationally throughout the rest of 2020. The most important part of this potential recovery forecast is June – December of 2020. If fuel prices stay low and things begin to reopen the lower fuel prices will be the biggest stimulus that directly affects retail and hospitality for this year.
For more detail on these figures, we encourage you to see our previous webinar and slides here where we go into detail on these forecast recoveries. As well, we invite you to our next webinar “Retail’s Cautious Restart: How COVID-19 Will Choose Retail Winners and Losers”
If we can help with any of the underlying data, please contact us.
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