US retail sales fell 8.7% in March, an unprecedented decrease as the outbreak of the coronavirus forced almost all trade across the country to close.
Auto sales fell 25.6% and clothing store sales decreased 50.5%, the U.S. Department of Commerce said on Wednesday. Restaurants and bars reported a slump of almost 27%. The decline far surpassed the previous 3.9% record from the Great Recession of 2008, and industry analysts anticipate even greater declines in the coming weeks.
US consumer confidence has shrunk and the vast majority of Americans are at home due to on-site orders. Consumer spending drives two thirds of the US economy, and the record drop in retail sales is a symptom of the deep recession that most economists believe the US has already entered.
“With clear signs of panic buying necessities and the fact that locks were only introduced in the middle of the month, this means that things will generally get much worse in April and the second quarter,” said Michael Pearce, economist at Capital Economics, a consulting firm.
Two retail categories have resisted the trend. Grocery sales increased nearly 26% as Americans stocked up on groceries and consumer goods to fight the pandemic. Online shopping increased by 3.1%. The Department of Commerce report included no spending on hotel stays, plane tickets, or movie theaters.
The drop in spending exacerbates the problems faced by brick-and-mortar retailers who have already struggled with online competition.
The pandemic puts clothing retailers at risk, while increasing the dominance of the large stores that have remained open to sell essentials such as groceries and household goods.
Reduction in executive salaries
Department stores and shopping centers have lowered executive compensation, suspended cash dividends and made share buybacks. They also use lines of credit to ensure that they have cash at their disposal.
According to reports, J.C. Penney went bankrupt after temporarily closing his 850 stores over the pandemic last month. Neiman Marcus is reportedly nearing bankruptcy. Nordstrom said it did not know when it would be able to reopen its physical stores and that longer closures could result in financial difficulties. Ralph Lauren and The Gap said they stopped ordering autumn products.
Walmart and Amazon are now activeto try to meet the increasing demand from buyers who shop online or on the roadside.
More than 250,000 stores – including Macy’s, Nordstrom and Nike – that do not sell essential goods have been closed since mid-March. According to GlobalRetail Research, this is 60% of the retail space in the United States.
Oxford Economics analysts said the trade department’s report is “just the beginning of consumer withdrawal and indicates a massive breakdown” among people wishing to spend between April and June.
Grocery stores and online retailers are unlikely to see the same sales increases in April, said Neil Saunders, general manager of GlobalData.
“The whole month appears to be a retail depreciation as stores remain closed for the duration,” Saunders said in a statement. “The panic buying has largely waned in the meantime and will not increase sales to the same extent.”