Vaccine Mandate, Labor Shortage and Holiday Sales
If you do your research, you will see that most predictions on US holiday sales range between 7-9% increase which would be the highest increase in many, many years. In our opinion this is extremely bullish and based on estimated consumer demand for the holidays with very little consideration for the supply of product, packaging, and labor.
Now to be fair to our colleagues, most of these forecasts were put together some time ago and there is some new data that, absent another round of stimulus checks, will make the low end of the forecast very difficult to attain.
Not only is retail facing significant product supply shortages that are being exacerbated by China shutting down suppliers (due to energy limits), closing ports due to COVID, and our own supply chain problems at ports, misaligned truck and container numbers, and lack of warehouse space on west coast (less than 2% occupancy), but chip shortages and store equipment upgrades are also impacted in the process. Energy price increases as well are impacting disposable income for other products. The one positive hitting the increase is inflation, which is sort of a back handed compliment.
One thing I have not seen discussed thus far is the impact of new vaccine mandates will have on unemployment and holiday sales this year. This post is not to pick sides on the merits of vaccine mandates – there are many other venues for that. But it is our job to look at the impact to the economy as a whole and retail sales in particular.
Although President Biden’s vaccine mandate legislation has not completely gone through yet for the private sector, several states, the federal government, and many employers have already implemented the mandate. We are beginning to see the fallout of that in unemployment as early as this week in New York and some other states. Based on initial estimates in data we have seen, between 10-15% of the workers in government positions (NY healthcare – hospitals and nursing homes, NC private employer healthcare) are losing their positions due to refusal to take the vaccine. United Airlines has been very public with their plans, and their numbers are lower (about 600 employees being separated from company), but estimates about American Airlines (not from company but unions) are that up to 30% of pilots are not vaccinated at this time. So, things are all over the map…literally and I am unaware of any retailer or hospitality institution that has publicly revealed such information. But it is a mystery we must work through for our prediction here.
For our analysis, let’s assume the president’s mandate for vaccination or weekly testing or be penalized becomes law for employers with over 100 employees this coming quarter. What are the impacts from a macro-economic standpoint and for the retail/hospitality industry already facing an acute shortage of labor?
IHL’s initial projection is that the total unemployment will increase to 7.2-7.5% from 5.2-5.3% today. This is direct impact. However, in NY, workers terminated for not taking vaccine are also not eligible for state or federal unemployment payments. This is a double impact that will ripple through the economy and most certainly impact the jobs of those who are vaccinated over time? If this is replicated in other states, how much more will that increase unemployment over time? Hard to tell. Another .2-.5% initially and then perhaps 1-3% more over time (before any potential benefit of more vaccinated population has positive impact from it).
This increase in unemployment will certainly put downward pressure on retail sales for the holidays which makes 7-9% growth very difficult on its own. But let’s also look at the more specific industry labor impact?
Very few retail and hospitality welcome this as a mandate from the government with penalties attached for non-compliance. They would prefer to make that decision on their own. It makes hiring incredibly more difficult and new store rollouts critically difficult. We are already seeing restaurants closing their indoor seating and even pickup in-store not because of COVID operations, but because they cannot get employees. They are reducing hours due to employee shortages, and many may close altogether due to not being able to get or afford to pay the rates for employees. But it is not just store personnel, but also supply chain, home office and IT personnel that will negatively be impacted.
For the holidays there are some predictable outcomes. Customer service will continue to deteriorate, delivery times extended, and all of these items with exception of inflation will put downward pressure on sales growth this holiday season.
Our prediction is +5-6% holiday sales growth across the full industry of 13 segments that we track. And it’s important to realize that this still is a historically great for holiday sales increases by comparison. But we believe 3% growth in the other forecasts will be left on the table due to mandates, unemployment increases and shortages of product and labor as they ripple through the industry.