The pandemic continues to challenge fashion retailers on innumerable fronts related to health, supply chain, availability of labour, lack of funds and the fast-changing consumer behaviour. And the story is the same in every part of the globe – from the US and Europe to Asia. While most countries struggle to find solutions to address the challenges, the US has been quick in action and the reflection can be seen from the fact that the US retail scenario in April 2021 isn’t as bad as what it was in April 2020 and projections indicate that 2021 will be more positive for retail than the year gone by.
Stores are gradually reopening and industry is now seeking to innovate and adopt latest technologies, while trying to engage their core constituencies – the intent is to reconnect with supply chains and make 2021 better in every possible way. However, it is prudent to note that the recovery will still not bring retail to the level it was in 2019, but the upward movement is a positive sign of recovery.
As per a recent report by McKinsey, there could be 7 to 12 per cent fall in US retail sales in 2021, compared to what it was in 2019. The report also added that whatever recovery happens will be modest and that too only before the first quarter of 2023. Europe is going to be no different from the US as the sales fall will be 2 to 7 per cent in 2021 compared to 2019.
However, according to, the NPD Group’s Chief Industry Advisor Marshal Cohen, the categories that slumped during the pandemic may come back in a big way in 2021, and that includes apparel and footwear segment. Some experts believe that fashion will make a big comeback this year and some retailers, including the likes of Abercrombie & Fitch and American Eagle Outfitters, have already started reaping the benefits.
While all these predictions are being made about US retail – essential or non-essential – one saw US retail sales jump by 9.8 per cent in March 2021. That’s wonderful to say the least considering February saw the country’s retail sales drop by 3 per cent. Confirming the same, the US Commerce Department said that this jump of 9.8 per cent was the biggest since May 2020, when retail stores had reopened in the US for the first time since the pandemic hit the country in March 2020.
The National Retail Federation (NRF) has added that retail sales at apparel and apparel accessory stores, in particular, rose by 18.3 per cent month-over-month (M-o-M) seasonally adjusted and surged by 104.6 per cent unadjusted year-over-year (Y-o-Y). Let’s have a look at the reasons that will continue to push retail sales upward in the months to come.
Vaccination rollout impacts US consumer behaviour
The rollout of COVID-19 vaccines and President Joe Biden’s call on states to make shots available to all adults by 1 May 2021 is more than good news for Americans and is helping them feel better about the economy and environment. In fact, this was good enough to raise the consumer sentiment index in March 2021 to 83 points from 76.8 in February 2021.
Here it is important to mention that the recently enacted American Rescue Plan Act gives increased incentives for all those employers who choose to extend emergency leave to employees with needs related to COVID-19 – including taking vaccines or recovering from illness or injury related to vaccine. Ever since COVID-19 vaccine distribution began in the United States last December, over 209 million doses have been administered (at the time of writing this piece), fully vaccinating over 84.3 million people – that’s 25.7 per cent of the total American population. Importantly, there’s a renewed confidence.
It is also interesting to witness some fashion retailers take initiatives now like Walmart, which has started administering vaccines in over 3,800 stores and clubs across 48 states, Puerto Rico and Washington, DC. Notably, the retailer has worked to administer COVID-19 vaccines into the arms of people residing in rural and vulnerable areas across the US. There are efforts to instill confidence in customers and help them come out and shop – and it seems to be working.
Meanwhile, President Biden has expressed hope about the pace of COVID-19 vaccinations, though he has also warned Americans to be extra careful. Vaccinations too are, to some extent, helping change the mindset of consumers, and with temperatures too warming up and public health situation also gradually improving, it is definitely something to cheer about for US retailers and consumers.
Unemployment benefit deal strikes perfect balance
Significantly, employers added as many as 916,000 jobs earlier this year, which is the highest since August 2020. The US $ 300 unemployment benefit deal too is helping the cause. The Retail Industry Leaders Association (RILA), which includes more than 200 retailers, product manufacturers and service suppliers, issued the following statement from Austen Jensen, Senior Vice President, Government Affairs in response to the compromise agreement reached recently by Senate Democrats on federal unemployment benefits in the COVID-19 relief bill.
The statement read “The compromise announced by Senate Democrats to keep the plus-up in federal unemployment benefits at US $ 300 strikes the right balance of helping those most in need while not creating an artificial barrier to reentering the workforce as the economy recovers. Today’s job numbers are a positive sign for the economy, and as we help families whose lives and livelihoods have been upended in the last 12 months by COVID-19, we must also focus on avenues for workers to return to private-sector employment.”
RILA members together account for over US $ 1.5 trillion in annual sales, millions of US jobs, and importantly more than 100,000 stores, manufacturing facilities as well as distribution centres in the US and globally.
Stimulus checks are driving sales…
With employment on the increase, the US consumer confidence skyrocketed in March 2021, which got further push when the US Government sent another round of stimulus checks in March, wherein several adults got US $ 1,400 (US $ 2,800 in the case of most married couples) and an additional US $ 1,400 for every dependent person as defined for tax purposes.
The Congressional Research Service estimates that these payments – better known as economic impact payments, recovery rebates or stimulus checks – are aimed at reaching 145.4 million households directly and total around US $ 380 billion. Notably, at the time of writing this piece, around US $ 159 million has been paid to American households directly – now that’s US $ 376 billion on the whole.
The NY Federal Reserve Bank, in a survey, recently revealed that many households want to spend 25 per cent of their stimulus checks on goods. In this regard, American fashion stalwart Macy’s said there’s been growing demand for dresses as weddings are round the corner in the US. Another fashion giant American Eagle Outfitters has said that sales have been growing owing to pent-up demand for its fashion.
As an extension of stimulus package, the American Rescue Plan Act of 2021 that envisages US $ 1.9 trillion relief was made a law by President Joe Biden in March. This law provides funding for pandemic-related relief to millions of families, state and local Governments, small businesses as well as schools, amongst others. Importantly, the main purpose of the package is relief and recovery from health and economic crises.
The American Rescue Plan Act also appropriates US $ 7.25 billion to the small businesses with the intent to carry out the paycheck protection programme. Besides, The Act has extended the employee retention credit to 31 December 2021. A large employer who is financially hit in a big way – especially those with over 90 per cent fall in gross receipts – can use the small employer ‘all employee wages’ rule in determining the credit. The Act, on the whole, seems to have bolstered the confidence of people across the country.
The question is – will the momentum be maintained!
Following March 2021’s gains, NRF is now forecasting that in the remaining months of 2021, retail sales could increase between 6.5 per cent and 8.2 per cent over 2020, for a total that could somewhere be between US $ 4.33 trillion and US $ 4.4 trillion. In fact, some experts believe there will be robust growth in the current quarter, with 10 per cent gross domestic product growth. Jack Kleinhenz, Chief Economist, NRF, said. “After a disappointing February, there was a perfect alignment of factors supporting a surge in shopping in March. Further reopening of the economy was encouraged by economic stimulus payments, the public health situation improved with more vaccinations, employment grew and there was seasonal activity around Passover, Easter and Spring break.”
Yes, there will be challenges! Work from Home may continue for some more time despite change in the mindset and environment – and if that’s true then casualwear and athleisure will continue to beat formalwear. Besides, even if US economy rebounds, consumers can still experience ‘economic scarring’ that may last far longer than the actual recession.
As per Deloitte survey data, digital acceleration will remain a priority for as many as 88 per cent retail executives going into 2021. Now that follows a year when, according to Deloitte InSightIQ analysis of Affinity Solutions spending data, the e-commerce shares of US retail spending hit 40 per cent in the spring and holiday season. Even omnichannel, with its blend of digital and store operations along with openness to technology, also took centre stage last year and will, in all likelihood, remain a major force in US retail this year too.
The retailers, in order to survive and thrive, will have to offer new products, greater shopping experience and additional services. That’s the only way they can bring customers to the bricks-and mortar stores in this new digital-governed world.
General cost cuts and lean inventories adopted last year amidst store closures and general uncertainty could continue in 2021 too, but this year could well turn out to be the year of opportunistic acquisitions. Notably, the total value of mergers/acquisitions in the consumer market rose by 7 per cent from what it was in 2019, according to a recent PwC report. It will be interesting to see if there would be any attractive mergers, but what generates more interest is if the US retail sector will be able to maintain the momentum it has got now after a superlative performance in March – and if it is able to do so, then how big the numbers would be. Whatever it is, the retail is going to look different now – very different.
If you want to encourage some activity, make it easy – Richard Thaler