Retail Gets Hit Hard by Coronavirus

Written by Jennifer Clark
Posted April 1, 2020

Without a doubt, the coronavirus is affecting the U.S. economy. It’s really destroying some industries — the retail industry in particular. 

To be fair, retail hasn’t been the most financially sound industry, and with the coronavirus and America shut down, we’re seeing just how bad of a shape it's in. We’re going on almost three weeks of isolating, and being out of business or work has put a huge strain on companies and individuals. 

This past Sunday, President Trump announced that the federal social distancing measures would continue until the end of April. That means non-essential businesses will remain closed for another month. That list of non-essential businesses includes malls and other retail stores. If it isn’t a basic need, then there is no reason for that business to be open. 

This is very important for trying to contain and stop the spread of the coronavirus, but the businesses that were weak before all of this will only get weaker. Gap Inc. (NYSE: GPS) is feeling the effects of this virus and the lack of foot traffic. The retailer was forced to close 90% of its stores around the world. A message released on its corporate blog by Sonia Syngal, the CEO of Gap Inc., and Bob Fisher, chair of Gap Inc.’s Board of Directors, announced their “painful decision” to furlough most of its store employees in the U.S. and Canada... and 80,000 employees globally. The store will remain closed until the pandemic is over. 

Gap is pausing employees' paychecks, but their benefits will continue until the stores reopen. For the past two weeks, Gap Inc. had been paying its store employees, but it’s obvious that it can't keep doing that. The company reported quarterly sales of $4.67 billion in its fourth quarter results, which did beat expectations by 2.73%. However, continuing to pay its store employees while experiencing a downturn in sales would financially strain the company.

Typically, Gap Inc. earns around 20% of its sales online — just about $3 billion — but with consumers switching to buying only necessities during this pandemic, online sales will be reduced.

Gap Inc. isn’t the only company to make this difficult decision. Rent the Runway, a popular clothing rental brand, laid off its entire retail staff via Zoom this week. The company has brick-and-mortar locations in California, New York, Chicago, and Washington, D.C. — all heavily populated areas that are being affected by the coronavirus. A Rent the Runway company executive said in the Zoom meeting:

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With the current uncertainty and continued government restrictions that are aimed to protect public health during this unprecedented pandemic, we have no visibility into when or if we will be able to reopen our stores. As a result of this, all retail roles are being eliminated. This was a heartbreaking decision. 

This is the type of decision that many retailers and other companies are being faced with. And if larger companies are making these difficult decisions, just imagine what small businesses are enduring. This will most likely be the tip of the iceberg when it comes to nearly the entire nation being shut down (minus "essential" businesses). 

The National Retail Federation estimates that $430 billion in revenues will disappear over the next three months. 

Not to mention, the recently passed $2.2 trillion stimulus bill isn’t likely to help businesses that were tight on cash before the pandemic. And receiving any money from that stimulus still looks like a long way away. 

It’s going to be a rough couple of months, and it could take some time to bounce back from all of this.

Until next time, 

Jennifer Clark
Pro Trader Today

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