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Retail sales fell 0.5% in February, the largest drop in more than a year

Thursday, March 19, 2020

Retail sales fell 0.5% in February, the largest drop in more than a year, indicating that the consumer sector was slowing even before the coronavirus struck with force in the United States. Economists said they were looking for even weaker numbers in coming months.

The Commerce Department reported Tuesday that the February drop in sales was the biggest since a 2% decline in December 2018. Sales had been up 0.6% in January.

The February decline came from weakness in a number of areas including a 0.9% fall in auto sales and a 2.8% drop at gasoline stations, a decline that reflected falling gas prices.

Excluding motor vehicles and parts, retail sales were still down a sizable 0.4%.

In a likely sign of things to come, online sales showed a solid gain of 0.7% in February. Economists are forecasting even bigger demand in this area as Americans heed warnings to limit activities outside the home to try to halt the spread of the virus.

“With virus fears escalating drastically, containment measures being stepped up and high-frequency data showing that consumers are already avoiding public places like restaurants and cinemas nationwide, it looks likely that retail sales will fall sharply in March,” said Andrew Hunter, senior U.S. economist at Capital Economics.

The retail sales report doesn’t cover the past week when the U.S. economy shuddered to a near-halt, the Dow Jones plummeted to new lows and scores of iconic chains like Nordstrom and Abercrombie & Fitch announced that they are temporarily shuttering to curb the spread of the coronavirus.

While discounters and grocers like Walmart, Target and Costco have seen long lines of customers wanting to stockpile groceries, many mall-based clothing stores, which were already struggling, are facing a drop-off in customer traffic. Discounters’ biggest problems now is trying to keep up with the surging demand from shoppers’ panic buying. Economists believe that the hit to consumer spending, which accounts for 70% of economic activity, will be enough to push the country into a recession.

The coronavirus outbreak is happening amid a widening gap in sales performance between the big box stores and mall-based clothing chains, which have been too slow to respond to shoppers’ shift to online spending. Analysts believe that gap will only further widen between those who sell non-essential items like clothing versus those who sell basics like food and cleaning products. Online leader Amazon.com said Monday that it is hiring 100,000 people across the U.S. to keep up with a crush of orders as more people stay at home and shop online. The online retailer will also temporarily raise pay by $2 an hour through the end of April for hourly employees.

Still, any surge in online shopping won’t be enough to offset what analysts expect to be an overall bloodbath in the retail world.

Deborah Weinswig, CEO of Coresight Research, a global research firm, said that she now expects 15,000 stores to close in 2020, nearly double her forecast of 8,000 stores that she made earlier this year. She says she expects that retailers could be closed for three months, not just two weeks.

“We are in a sustained spending halt,” she said.

Neil Saunders, managing director of GlobalData Retail, a retail research firm, estimates that the U.S. retailers that have announced temporary closures related to the coronavirus so far operate a combined 87.2 million square feet of retail space in the U.S. Their combined U.S. sales for March last year were $8.2 billion — $6.1 billion in stores and $2.1 billion online.

Nordstrom became the first department store chain to announce that it would temporarily close all 380 stores, including 116 department stores. It said it was withdrawing its annual financial guidance, noting a slowdown in consumer demand, particularly in areas impacted by the coronavirus. It also said it would suspend its share repurchases. Nordstrom is among a growing list of retailers that are closing temporarily including Apple, Nike, American Eagle and Sephora.

The big question is whether malls will follow. Already, the nation’s two largest malls, Mall of America in Bloomington, Minneapolis, and American Dream in East Rutherford, New Jersey, are both closing through March.

By: DocMemory
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