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Which retailers are less vulnerable to the coronavirus and whatever comes next?
Last week on his company’s fourth-quarter conference call, Todd Vasos, CEO at Dollar General, said he expects his chain’s proximity to consumers to be beneficial should calls for social distancing continue amid the coronavirus outbreak.
The retailer’s stores are within five to seven miles of over 75 percent of U.S. households.
“The most important thing here is that we’re a small box shop close to your home,” said Mr. Vasos. “I think in times like this, where people are probably less apt of travel, we believe that we’ll get our fair share of that consumer base, because they just don’t want to travel to the big box or don’t want to travel great distances.”
Asked about the impact of a potential downturn, Mr. Vasos expects Dollar General to benefit similarly to 2008’s Great Recession as consumers traded down. “The great thing about that is, maybe she visited us back in ’08 and ’09 and some obviously may not have come back,” said Mr. Vasos. “When she comes back, she is going to see a completely different box that’s even more enhanced then she saw before. So, we will watch it carefully, but we think we’re well-positioned as we move forward here.”
E-commerce overall is expected to benefit as consumers avoid crowded places. Wells Fargo, as per a note on March 11, is among those not believing the online gains would offset reports of double-digit declines in-store traffic.
“COVID-19 and initial plans for its containment present some clear downside risks to the consumer spending outlook, but it would be premature to expect consumer spending to crater. Many categories of spending are resilient, even in the most uncertain times,” Wells Fargo analysts wrote in the note, according to Retail Dive.
Sellers of staple products are expected to see more demand than those selling non-discretionary items, should the economy weaken or head into a recession. At a press conference Friday detailing the federal government’s response that included top retail company executives, Brian Cornell, Target’s CEO, vowed the chain will remain open “to serve the American consumer who’s rapidly stocking up on household essentials.”
- Dollar General Corporation Reports Strong Fourth Quarter 2019 Financial Results- Dollar General
- Dollar General Corporation (DG) Q4 2019 Earnings Call Transcript – The Motley Fool
- Dollar Store Investors See Green in a Sea of Red This Week – Bloomberg
- Coronavirus is hurting store traffic and e-commerce won’t help much, analysts say – Retail Dive
- Why Dollar General thinks coronavirus will help business – Fortune
- Retailer leaders issue statement on responsible shopping during COVID-19 pandemic – National Retail Federation
- Leading Retailers Step Up To Partner On Covid-19 Testing – Retail Industry Leaders Association
Discussion Questions
DISCUSSION QUESTIONS: Which retail channel and retailers appear best positioned to withstand the impact of the coronavirus outbreak? What do you think is the likelihood that the coronavirus outbreak and other factors will push the U.S. economy into a recession in the coming months?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Shikha Jain
Partner, Simon-Kucher & Partners
There’s no question we are headed for a recession. The impact of school and business closings and overall uncertainty from coronavirus for most of America will no doubt create a recession. Grocery – and those selling food – are best positioned to withstand the storm as they are essential.
In the thousands of retailers we track store traffic in, they almost all fall into one of two groups: essentials and non-discretionary. For essential retailers like grocery, pharmacy and household – traffic is predictably up. For non-essential categories, traffic this last weekend was down in the 30 percent to 40 percent range. As most experts agree, the situation in the U.S. will get worse as testing increases. This will likely continue to put pressure on retailers and especially retailers in the non-essential goods category. Even if a cure was discovered tomorrow, it would probably still take months to restore business to “normal” levels. I expect that we’ll be dealing with this through most of 2020.
I believe food stores in general will be best positioned to withstand what is coming. Clothing and other specialty stores will have a hard time. Restaurants will be bounce back once the bans are lifted.
I agree that restaurants will bounce back, but I seriously doubt that consumers will increase the number of visits they make after the bans are lifted so business lost now is pretty much lost forever.
A restaurant, or any business really, won’t “bounce back” after the bans if they go out-of-business during them.
Clearly, this is a growth opportunity for m/e-commerce. People need essential goods, stores are closing, food stores have empty shelves, and many will be at home working remotely, so even those that are limited online shoppers will have little choice but to embrace it more. With panic buying driving food sales, this will be the (very unfortunate) shot in the arm online grocery sales has waited for. And of course, the major players will gain the most, but smaller sellers with high-demand goods will do well too.
But for those merchants that operate physical stores as their primary, especially for non-essential verticals, the digital gain is very unlikely to offset the physical store losses.
Face it, we’re going into a recession. When they announce mall owners like American Dream are closing and this morning that Wynn and a bunch of other Vegas properties are closing, it is a evidence we are in uncharted territory. When people can’t work, can’t feel safe, and 70 percent of our economy is built on the consumer, it only points to decreasing demand. That’s why the Dow dropped 2500 at open today. Hopefully it will be short-lived and we can make up some of the ground lost in Q3 and Q4. And while it is due to a lack of leadership at the top, all we can do now is concentrate on minimizing the impact on people in the ICU in 14 days.
The obvious – grocery stores, and any stores that are selling consumables – will actually see revenue growth as consumers shift spending from restaurants and stock up on groceries and consumables. The challenge for these companies will be their ability to dramatically ramp up curbside and delivery services as consumers will avoid going into stores.
For all other segments there will be a huge shift to online shopping, but it won’t compensate for the loss of in-store purchases as consumers will curtail their spending in the face of uncertainty.
If we continue to spend at a normal rate (rather than hoarding staples) so businesses have a relatively normal revenue path, and buy gift cards at the local businesses to be used when the virus threat passes, in order to give the small businesses a steady cash flow to pay their staff, etc., the likelihood of a real recession will be drastically reduced. However, mass cooperation in that way may be difficult to execute.
It will be a fool’s errand to predict the winners and losers. It all depends on the strength, resilience and flexibility of the supply chain – to take advantage of the pent-up demand once the dust settles, as well as to be positioned well for future events. Can they manufacture or procure items that are more in demand? Even in the non-discretionary category, if the supply chains are weak, it will be tough to bounce back once they sell through the inventory.
Department stores are doomed, frankly. They were weak going into this and many won’t be able to withstand a prolonged period of mass-disruption. Apparel is also at risk as demand will plummet and the sector is already over capacity. Grocers and drugstores will do reasonably well; their sales have spiked now, but they could slow if things become even more disrupted. I agree that local stores – and the dollar stores excel at that – will do well. The bottom line is that no retail sector will emerge completely unscathed. This is becoming a crisis of enormous proportions.
The coronavirus has escalated to the point that we are on the verge of a major recession. With all non-essential retail stores, services, and operations closing for an indefinite period of time, the grocery stores, convenience stores, pharmacies and gas stations are technically well positioned to withstand the economic downturns. Retailers, restaurants, hospitality, airlines and other non-essential businesses are going to be impacted significantly over the weeks and months ahead.
While the grocery sector has been deemed essential, if any of you went shopping over the past few days, you saw the mass out-of-stocks and absolute chaos in the stores. We have yet to understand the impacts of Covid-19 on the global supply chain and how grocery stores and pharmacies could keep up with the increasing demand.
This crisis will impact the retailers who were already experiencing disruptions and undergoing transformations to adapt to the new shopping paradigms. The future is very uncertain and we are all tuning in to see what is coming next.
Look for a sharp uptick in home delivery of almost everything — prepared food, groceries, and goods of all kinds. Right now we’re at the “concerned” stage, but when emergency rooms start filling up and people are waiting in lines in parking lots to be tested, expect new businesses to spring up overnight to supply American households through delivery.
We can divide retail stores into two types. Those that carry items that we must have and those that carry items that are nice to have. The first includes locations that carry food, medicine, etc. The second group includes everything else.
The short-term impact on the first group is what we are seeing now – panic buying and hoarding. The second will definitely feel the impact. That being said, I had to get something in the first category Saturday and drove pass parking lots of retailers in the second group and they were full.
I agree small format stores, especially those that carry items in the must-have group, are best positioned to withstand the impact of current health crisis.
No channel or retailer is best positioned to withstand this impact. The economic chain of events will be bad for some, devastating to others. Economies are based on the consumer. As people at the lowest level lose their income, even the grocery stores will be affected.
We are in a downward cycle that will get worse before it gets better. When restaurants and bars close, and events are cancelled, money is taken out of the economy. It will not be back-filled. What we see in the stock market is not concern for people getting sick or dying. It is the knowledge that the economy will tank.
As I shared here earlier this month, a clear opportunity here is for online sales with to-the-home deliveries. Looking ahead, this could turn out to be the catalyst to drive a significant leg up and acceleration in online retail sales as a proportion of overall sales. Retailers will look to reassess their geographic sourcing risks and product flow strategies as well as accelerate the shift of investments from a primarily physical presence to online and synergistic hybrid models. Gaining clear insight into the changing consumer demand patterns will be critical to crafting and executing retailers’ survival plans.
The very strong brands like Nike and Apple are in a much better position to close than the more generic brands as they can be quite sure that they will not lose a sale. It may get delayed or it may go online but it is less likely to be lost. For many other retailers, this is a much less easy decision as they are likely to lose sales if they are not open and a competitor in the same mall is open. We will learn a lot about people’s propensity to switch from store to online when this happens.
As a practical matter we are already in a recession. The only questions now are how deep and for how long (my guess: -5 percent GDP growth for at least two quarters).
The best-positioned retailers are those who primarily sell necessities and have a strong harmonized (my term for omnichannel) presence, particularly as related to cost-effective home delivery, BOPIS and curbside pickup.
A recent study by the Boston Consulting Group revealed that, in places deeply affected by COVID-19, credit card transactions illustrate a drastic lift in sales in grocery, mass retail (Walmart, dollar stores, etc.) and pharmacy as well as online commerce like Amazon. It’s difficult to predict the exact impact this will have as time goes on, but the destabilizing change is certainly favoring a few small groups (grocers, pharmacy, mass retail) as it hurts most others. At least for now.
Clearly grocery is exploding right now. Panic buying has set in with little rhyme or reason as evidenced by the toilet paper rush. Another interesting phenomenon I noticed was a back order on prescription drugs (2 weeks now). I have never heard of anything like this and believe it is related to the freeze in China related to the virus.
The dollar stores, who locate in many rural locations, will certainly continue to increase market share. Grocery delivery, BOPIS and food delivery will also experience a permanent increase. I believe once we get more used to these services, we will likely never go back to our traditional shopping patterns.
Food/Drug/Mass will be robust — even benefit financially — as Americans stock up on necessities. However, brick-and-mortar stores including clothing, furniture, and gift shops will founder. These are items that will be sold via online retailers.
UPS and FEDEX will thrive.
Every sector is likely to be affected over the short-term (except maybe virtual technologies that support remote working). There are three channels/retailer types that will hold up the most during this period of crisis and uncertainty:
One interesting retail sector that is also benefitting from the virus ties deeply to the insecurity of humans.
I’m curious who these 8% who voted “very unlikely” are. With the news becoming unprecedentedly — indeed inconceivably — grimmer minute-by-minute, it seems like we should be talking about total collapse.
What are the thoughts on the Home Improvement Sector?
Grocery stores will be the least vulnerable channel because consumers cannot do without food and drink. Already, savvy grocers are shortening hours to allow for maximum restocking of shelves as people continue to hoard goods. Big winners among food companies will be makers of frozen food and canned goods.
Certainly there will be big lessons learned from this horrible time. But there are smaller yet very powerful “stand-out” actions that retailers are taking. Case in point: I was thrilled this morning with DeCicco and Sons, an eight store grocery chain in and about Westchester County, NY. They have opened their stores stores early with special hours for their senior shoppers. They saw the need for older shoppers to have a less “aggressive and competitive” shopping environment. When this coronavirus issue passes, it is a certainty that those seniors will remember this. And the younger families? They’ll remember this chain as well, as having a heart.