With entire cities now locked down, industries closed, and consumers losing their paychecks as the COVID-19 governments force them to close down, the retail sector will be hit with “Greatest Depression” sale slumps.
Key industries requiring face-to-face contact with customers are shutting down, leaving tens of millions of workers suddenly without paychecks.
The legendary restaurant, Gotham Bar and Grill, which helped shape modern fine dining in New York City, has closed permanently, saying, “The coronavirus has made continued operation of the restaurant untenable.”
The Stranger, an independent biweekly Seattle free newspaper, relied for 90 percent of its revenue on selling event tickets and running ads for events, eateries, and other venues where people get together. Those revenue streams disappeared within a couple of weeks and, after laying off 18 workers, the paper is now begging the public for donations to survive.
Darden Restaurants, which owns Olive Garden and seven other dining chains totaling 1,800 eateries, reported sales fell 21 percent during the week of 15 March and is redeploying workers to make deliveries.
Most of New York City’s 700 hotels are closing, and up to 80 percent of their 55,000 employees are expected to be furloughed. Hotels that remain open are closing off entire wings or floors and reducing workers’ hours to meet an occupancy rate of around 20 percent.
From Marriot to Hilton, from theme parks to casinos, big and small, across the globe have shut down, putting millions of employees making paycheck to paycheck wages out of work… along with related industry businesses and workers that supply products and services.
To the lodging industry, the virus crisis is “more severe” than “September 11 and the 2008 Great Recession combined,” said Chip Rogers, president of the American Travel & Lodging Association.
The U.S. Travel Association estimates that total spending on U.S. travel – everything from rooms and rental cars to restaurants and theme park rides – will shrink by $355 billion this year and chop four million workers off payrolls.
The hotel and travel industries are lobbying the Trump administration for $250 billion in help. Airlines already have asked for $50 billion.
“You can’t resell a hotel room from last night,” said Paul Singerman, a bankruptcy lawyer. He worries about “how thinly capitalized hospitality providers and travel businesses are going to make it. When you look at the ripple effect on parties in their supply chains, it is dramatic.”
TREND FORECAST: With thin profit margins, the restaurant business is tough business even when business is good. Half a million restaurants are forced to close every year, according to RestaurantOwner.com.
Full-service restaurants generally have margins between 3 to 5 percent. Thus, the delivery service now permitted will bring in a fraction of revenue compared to full dining and bar service… which accounts for more profitable margins, since alcohol sales have a cost-of-goods-sold margin of about 20 percent.
Furthermore, as people run out of money, they will be ordering less takeout.
Now, with orders by governments to shut down, many will not reopen. And, when they are permitted to open to the public, for those that do, desperate staff will steal whatever they can.
TRENDPOST: “Social distancing” is a new term made up by politicians since the outbreak of the coronavirus. They have made laws restricting the number of people that can walk down the street together or gather in one’s house. However, in the U.S., they permit people to go into supermarkets, liquor stores, drug stores, and work on assembly lines and in Amazon warehouses with no restrictions.
Further, not one shred of scientific facts or quantitative data determining the proper distance between people or how they can gather has been provided.
Urban Malls Next to Fall
For decades, suburban malls have been steadily closing down as their shoppers have been lured away by online retailers. But, malls in well-populated urban centers have largely been spared that fate because more people are closer to them.
Now, in the time of COVID-19, even that advantage is disappearing as shoppers stay home by choice or government mandate.
Apple and Nike are closing their retail stores for two weeks; REI will close its 162 outlets for about the same amount of time and said it will continue to pay employees during that time.
The loss of traffic is gouging mall owners as stores go dark and sales disappear because malls often collect a percentage of store sales in addition to rent.
Simon Property Group, the U.S.’s largest mall owner, has been granted an expansion of its $4 billion credit line to $6 billion. Macerich Co., owner of 47 malls, distributed 75 cents a share in stock dividends last year; this year, it’s cutting the dividend to 50 cents and paying 80 percent of it as additional shares of stock instead of cash.
TREND FORECAST: Like the oil price meltdown where there is more supply than demand, so, too, with retail. With stores fully stocked but unable to sell products because to the lockdown, there will be massive “90 percent Off” sales.
In addition, prices will dramatically decline in the automobile sector – new, used, vintage – and in art, antiques… as well as retail real estate sectors.
Indeed, beyond retail, we forecast a sharp decline in real estate from big cities to small towns.
Should the mass coronavirus hysteria continue, as we had previously forecast, for those that can afford to do so, there will be an exodus from big, congested cities to small rural towns. And now, with the work-at-home trend becoming the new normal, the attraction to move to more affordable towns and away from the maddening, crime-ridden cities will escalate.
Brakes on Car Sales
On 19 March, automaker Ford shut factories in Europe and North America and drew $15.4 billion from two of its credit lines to keep operating as new auto sales plummet around the world.
It’s the largest credit draw any company has made since the virus pandemic began, the Financial Times reports.
Ford also canceled its stock dividend. After the announcement, Ford’s share price fell 5 percent, but it has recovered slightly.
The stock price is also struggling under the weight of Ford’s ongoing restructuring.
To boost sales, Ford is offering buyers three months free of car payments, with the following three months’ payments deferred.
TREND FORECAST: This is just the beginning of the “Greatest Depression” for auto sales. New car sales in China plummeted 80 percent year over year in February 2020. This marked the biggest monthly plunge on record.
Auto production has stopped in much of the world. With people out of work and already deep in auto debt, they will not only default on current loans, they will sell what they own, pushing down used car prices.
