How the Stimulus Package Will Impact Retail

March 27, 2020
By Stacy Berns
Originally published on LinkedIn

Retail Influencers (top left to right): Dana Telsey, Matt Rubel, Karen Katz, Keval Desai, Marigay McKee, Greg Petro, Stacey Widlitz, Janie Yu, Matt Shay, Nicole Johnson, Oliver Chen, Richard Kestenbaum, Andrea Weiss. Melissa Gonzalez, Steve Sadove and Sucharita Kodali

The $2 trillion stimulus package, the biggest in the history of the country, was just signed into law. Today, our weekly Retail Influencer Network discussion focused on the impact this third installment of government relief will have on the retail industry. Steve Sadove, Principal, Stephen Sadove and Associates, led the discussion, which featured NRF President and CEO Matt Shay and First Insight CEO Greg Petro. Here are highlights from the discussion:

Overall, the fiscal stimulus package is good for retailers, their employees and consumers, but the specific impacts and timing are uncertain. Matt Shay says that, fortunately, the new package includes unprecedented access to credit, workforce support and tax relief for retailers of all sizes, as well as real aid for consumers.

However, some retailers may be unable to take advantage of all the benefits afforded by the new law. For example, smaller companies that are subsidiaries or that are backed by private equity may be ineligible for SBA loans, Matt Rubel, Executive Board Member of MidOcean Private Equity, points out.

Shay says that retail CEOs will now begin an aggressive communications effort with the Treasury Department and the Federal Reserve to determine if their companies qualify for relief and to quantify the potential benefits. Treasury Secretary Steve Mnuchin has estimated that retailers could feel the benefits of the act in several weeks and Shay hopes that the timeline will be even shorter for most.

Expect to see more furloughs, as retailers aren’t willing or able to commit to store reopening dates, says Dana Telsey, CEO and Chief Research Officer of the Telsey Advisory Group. While retailers are trying to keep people employed, it’s proving economically unfeasible for many, and we’re likely to see a slew of additional furlough announcements soon. Furloughs are preferable to layoffs because retailers want to be able to hit the ground running as soon as they’re able to get doors reopened.

Landlords will have to come up with rent relief packages, as 96% of retailers are seeking rent abatement, says Oliver Chen, Managing Director of Retail and Luxury Sector Head at Cowen and Company. While grocers and other essentials providers are still open and seeing surging demand, tenants in other sectors are seeking rent deferrals of up to three months with subsequent payment plans.

That trend is not unique to the US, according to Stacey Widlitz, President of SW Retail Advisors, who says one of the largest mall operators in the UK has seen a significant reduction in rent collection. She says rents will likely come down permanently as a result of the crisis.

The retailers most reluctant to pay rent right now include gyms, movie theaters and dental practices says Melissa Gonzalez, CEO and Founder of the Lionesque Group and Principal and Shareholder of MG2 Design.

Vendors are facing severe capital constraints, and even canceling back-to-school and holiday deliveries. Many department stores are unwilling to accept any orders until at least July, says Cowen’s Chen, adding that the pace of the consumer recovery is a real risk factor going forward.

Greg Petro underscored that by citing a recent First Insight consumer survey finding: the virus outbreak is impacting the shopping behavior of 75% of respondents, up from 45% in the company’s late February survey.

Stores in different regions may reopen at different times, says Karen Katz, former CEO of Neiman Marcus. It’s unclear if that will happen, as there would be unpredictable public health and economic ramifications of any such decisions. Either way, it’s extremely important that retailers figure out exactly what their consumers need now, and find ways to deliver those products, Katz says.

Aside from staples and groceries, consumers are focusing on gaming, beauty, athleisure and online fitness. Marigay McKee, Managing Partner at Fernbrook Capital Management, is seeing an uptick in beauty product sales as consumers move to DIY beauty routines amid salon closures. Chen adds that one online fitness platform has seen an 800% increase in use in recent weeks and that retailers that use gamification and interactivity with virtual communities are doing better than some of their peers right now, a trend that may continue even after the pandemic is over.

McKee notes that there’s optimism about Asia’s economic recovery, as some companies in the region are already performing at 70% of last year’s levels. She says that companies’ marketing efforts should focus on humanity and caring during these tough times, as aggressive selling online is not being well received by consumers right now.

There’s no doubt retail will look different once we emerge from the current situation. Steve Sadove notes that retail leaders are so focused on getting through the next few months with liquidity that they can’t even think about structural change and what they want their organization to look like once the crisis is over. But this is an ideal time to do that, he says.