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Retail Sales Crash Again Amid Sharp Fall in Consumer Spending

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Consumer spending activity, which remains one of the pivotal factors driving the economy, continues to fall dramatically, owing to the coronavirus-induced crisis. The pandemic, which resulted in a complete shutdown of business activities, has taken a toll on employment and household income. As a result, U.S. retail sales witnessed a record decline for the second consecutive month in April, and came below analysts’ expectations. This highlights the fact that what is being viewed as a temporary blow to revenues and productivity due to the outbreak may have deeper implications.

Market pundits highlighted that stay-at-home orders, social distancing and some mandatory closures resulted in lower traffic and soft sales at stores. Consequently, the e-commerce sales showcased a sharp increase, as consumers shop for essentials from home amid lockdown. Industry experts pointed that online sales started to rise in the later part of March, and the trend continued in April as well. However, this surge is not enough to mitigate the losses that the overall retail sector has been bearing due to this biological catastrophe.

Economists see more pain ahead, given waning confidence and rising job losses. They have forecast a significant fall in U.S. GDP for April-June quarter. No wonder, policy-makers have been frantically working toward urgent repairs. President Trump signed a stimulus package aimed at helping workers, small industries and distressed companies on the brink of bankruptcy. Even, government bodies are contemplating on easing restrictions and gradual re-opening of the economy. As lockdown is slowly lifted and stores begin to open, sales will pick up but will take time to reach the pre-COVID stage.

Retail Sales Crashed Again

The Commerce Department stated that U.S. retail and food services sales in April fell 16.4% to $403.9 billion, following a revised reading of 8.3% decline in March. We note that retail sales have fallen 21.6% from April 2019. Sales depressed across a range of categories except non-store retailers, where rate of sales growth increased on a sequential basis.

A Broader Picture

We note that prolonged store closures, supply-chain disruptions, lower traffic trends and limited store operating hours in the wake of the pandemic are hurting revenues of several industry players. Further, the rising macroeconomic uncertainties and bare minimum revenue prospects compelled companies to call-off their guidance. Obviously, with no or minimum revenue generation, maintaining liquidity amid the crisis has become a herculean task for a number of industry participants.

Retailers have been taking every step — from pay cut to furloughing, from inventory reductions to lowering capital expenditures and from suspending share repurchases and dividend payments to drawing credit lines — in order improve financial flexibility and preserve cash flow. In spite of these measures, retailers have been looking helpless when it comes to revenues. Companies such as Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) and Gap (GPS - Free Report) are reeling under the impact of this pandemic.

However, there are companies that appear to be in a better shape, as consumers’ panic-buying trends amid the crisis resulted in high demand for essentials that have been flying off the shelves. Industry bellwethers such as Amazon (AMZN - Free Report) , Walmart (WMT - Free Report) and Dollar General (DG - Free Report) even hired associates to ensure swift customer service amid such challenging times.

Players in the industry are focusing on bolstering omni-channel operations and ramping up delivery services to meet customers’ needs who are spending more time at home to minimize the risk of infection. Tractor Supply Company (TSCO - Free Report) equipped itself to offer same-day delivery of its merchandise by expanding partnership with Roadie.

Analysts believe that once the coronavirus spread is contained and vaccine discovered, the retail sector, which touches every sphere of our life, is likely to witness a sharp rebound.

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