By Wally Chang
When the American people hid away in their homes, stopped going to work, and stopped spending money, the American economy too, shrank back. United States GDP dropped 9.1% in Q2 2020, a drop of unprecedented proportions, job employment fell by 20.5 million jobs in April alone, and perhaps most interestingly and impactfully, total retail sales dramatically fell 14.7% from February 2020 to April 2020. Even with companies making dramatic changes to their financial structures in hopes of minimizing losses, the impacts of reduced spending in the retail industry were felt by nearly all outlets. The hardest hit retail sector was undoubtedly that of clothing and clothing accessories, with a decrease in sales of 50.5% from February 2020 to March 2020, nearly double the decrease of the next hardest hit industry: that of furniture and home furnishings. Even in July 2020, apparel sales were down 25% year over year. In response to the dire effects on the economy, the Coronavirus Aid, Relief and Economic Security Act (CARES), was passed by the US Government on March 27, 2020, releasing $300 billion in economic aid through the medium of stimulus checks to support jobless families and to boost faltering retail spending.
According to statements by CEOs of large retail firms such as Apple and Walmart, the stimulus checks distributed in late March did help sustain retail spending. Corie Barry of Best Buy stated that “like many other retailers, we saw sales benefit during the last three weeks of the quarter as customers undoubtedly chose to spend some of their government stimulus money”. However,
other companies like Macy’s and L Brands did not disclose first quarter earnings from stimulus spending because their numbers were too low. Still other reports state that money from stimulus checks were saved or spent on essentials like food and rent rather than on boosting discretionary
retail spending. These trends imply that, though stimulus checks might work in the short term, they fail to promote success in the long term for big box retailers, especially for those specializing in apparel.
The purpose of government stimulus checks is to increase spending by the general populace with the hope of providing economic stimulus. The amount released ($1200 per month, or $2400 for a two-parent household), however, isn’t enough to stimulate spending by the average American family. According to GOBankingRates, a data research firm, the average American spends $164.55 a day, most of which on housing, groceries, and utilities. Breaking it down further, one of the largest age groups likely to receive checks, Gen X, spent the most on housing and groceries. This implies that, one, the money released from stimulus checks was likely spent in under a week, and two, that the money was spent on buying essential goods and paying rent rather than purchasing retail and discretionary items.
The fact that stimulus checks were mostly spent quickly and on essential goods is further evidenced by data gathered by the US Census. According to respondents to a Census survey, “About 80% ... reported using [stimulus funds] on food, and 77.9% on rent, mortgage and/or utilities, including gas, electricity, cable, internet and cellphone”. Evidently, the implementation of the CARES act did not have the beneficial impact on the retail industry that it had on the market for groceries and other necessities. These spending patterns are to be expected; to splurge on luxury items during a period of severe economic recession would be irresponsible for most
families and individuals. Indeed, many US families are adding their stimulus checks to savings accounts instead of spending them.
Though these shifts in consumer spending appear to indicate that the retail sector was damaged as a whole, the reality is not so simple. Big box clothing retailers, such as Neiman Marcus and J. Crew, certainly were hurt by reduced retail spending, filing for bankruptcy in 2020. Stock from retail giant Macy’s is still down over 60% from its January 2019 numbers.
On the other hand, statements made by captains of the retail industry like Tim Cook, CEO of Apple, and Brian Cornell, CEO of Target, contradict reports made by clothing retailers and Census data. Cornell asserted that there was a “resurgence in sales of clothing, cosmetics, and other discretionary items,” as a result of the releases of checks and the boosting of discretionary spending. In support of Cornell’s statements, Target’s financial documents note a 6% sales jump from March 2020 to April 2020, which coincides with the release of stimulus checks. Reportedly, consumer spending at Target for electronics also rose 70% year-over-year.
Apple also reported higher sales of Macs and iPads due to increases in virtual learning platforms and working from home. According to statements by Apple, iPad sales increased 31% from June 2019 to June 2020. Other companies such as Best Buy, Lowes, and Home Depot also reported increases in consumption due to stimulus-related cash influxes.
However, these increases in “retail” spending do not necessarily indicate a comeback for retail as a whole. The common denominator between Apple, Target, and Best Buy is their sale of electronics. With the exception of Lowes and Home Depot, who saw increased sales due to purchases of DIY materials, Apple, Target, and Best Buy attribute their increases in revenue to the rising necessity of electronics for at-home productivity and education. Thus, though these companies may be broadly grouped into the “retail” sector, the spending at these stores was not discretionary: rather, it was an extension of necessities-based spending. True areas of discretionary retail spending such as clothing retail continues to suffer.
The CARES act was partially intended to save a faltering retail industry. Clothing companies like Neiman Marcus, J Crew, Lord & Taylor, and JC Penney, among others, were supposed to benefit from the injection of cash directly to consumers. The jobs they provided were supposed to be maintained, or at a minimum, the losses of said jobs were supposed to be mitigated by CARES-related spending. Unfortunately, this target of the CARES act was missed by a wide margin. According to the US Bureau of Labor Statistics, from March 2020 to May 2020, there was a 69.3% loss of employment in the men’s clothing retail industry and a 64.8% loss in the women’s. In an industry with around 1.35 million jobs, and with a mean salary of about 18 dollars per hour, this loss is substantial to the American economy.
In this regard, the stimulus checks failed to heal a badly wounded retail industry. Ultimately, releasing checks to families financially damaged by the coronavirus pandemic and expecting them to spend the money to stimulate areas such as the retail industry was naive. For a stimulus package to be effective in discretionary spending, the release of funds must be in greater quantity and over a longer period of time. Additionally, those who are receiving the money cannot be in a critical financial position. Instead, they must be well off enough to be able to spare discretionary income out of their regular budgets. As the US coronavirus case count continues to rise, one thing is certain: the retail industry is still in trouble.