The U.S. government declared the Covid-19 outbreak a national emergency on 13 March 2020, paving the way for statewide lockdown measures affecting the vast majority of American businesses. Retail has been no exception, with only so-called essential retailers authorized to remain open – food stores and general merchandise stores selling predominantly food, as well as pharmacies and building material retailers. The immediate impact of the Covid-19 outbreak has therefore been felt very differently across the industry.
As of 18 May, restrictions on retail activities have been progressively lifted across many states. However, adding to the already challenging environment, consumer confidence has collapsed, with jobless claims soaring, the unemployment rate jumping from 4.4% in March to 14.7% in early May and, for the year 2020, an expected -2.7% contraction in U.S. GDP. The fast deterioration of the economic environment will further widen the divide between food retail, which is resilient, and discretionary retail, which is cyclical, at least for the eighteen months to come (see Figure 1).
Figure 1: Retail sales - nominal GDP growth correlation across segments (1992-2019)
Our central scenario for the U.S. economy assumes a two-month lockdown period followed by a progressive exit from lockdown lasting another four months, sending 2020 real GDP growth down -2.7%. We combine this macroeconomic scenario with 1) evidence of retail sales performance under lockdown collected from dominant retailers and 2) historical retail sales data at segment-level to provide an estimate of the 2020 turnover of the U.S. retail industry. Our calculations point to an unprecedented divide between the main segments of the industry (see Figure 2):
Figure 2: Forecast for 2020 retail sales across segments of the retail industry