The Impact of COVID-19 on Retail

By Bendy Yuan-Zhao (NYU Shanghai) & Ory Ratoviz (Cal Poly SLO)


As COVID-19 spreads economic uncertainty, particularly in the United States, the retail industry has seen an emergence of new trends. Primarily, public health regulations have resulted in additional challenges for restaurants, shopping malls, and other large retailers. Therefore, brick-and-mortar operations are exploring digital distribution channels while innovating existing platforms. Even with adaptation and government support, the pandemic has resulted in long-term disruptions and, in some cases, irreversible damage.



Section 1 — A COVID World 

  • While a third of consumers suffer losses in discretionary income, another quarter enjoys extra leisure time on top of already-high discretionary income.

  • 60% of consumers are still uncomfortable with in-person grocery and pharmacy trips, and 71% are uncomfortable with both shopping centers and non-essential retailers.


Section 2 — Regulations in Retail

  • Regulations force many businesses, specifically the non-essential ones, to close down.

  • Safety concerns are causing a decrease in foot traffic in malls and shopping centers, significantly reducing revenue for these companies.


Section 3 — Digital Adaptation 

  • Walmart, Target, and  Kroger — among other Fortune 500 retail giants — adapt by promising same-day delivery to consumers and implementing omnichannel networks 

  • Though corporations have adapted by moving to digital platforms, modern consumers are expecting innovative technology in their purchasing process. 


Section 4 — Irreversible Damage

  • Businesses are incurring their highest levels of debt and are declaring bankruptcies at a record-setting pace.

  • Government programs like the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), and unemployment benefit bonuses, are helping businesses and individuals survive severe economic damage.



A COVID World 


Before analyzing retail trends, it is vital to note COVID-19’s impact on consumer behavior. Citing various June reports, The Wall Street Journal estimates a decrease of 30-40 million jobs in the U.S. during the span of the virus. Accenture classifies a third of consumers as “financially-squeezed” — left with less spending power compared to pre-pandemic — and another quarter as the “resource-rich” — those gifted with extensive leisure time on top of high discretionary income. 


Despite the drastically-different circumstances of the two categories, both have become more conscious of their everyday choices. Diving more in depth, Accenture reports that 75% of consumers are limiting food waste, and 67% are shopping more health-consciously. As Americans consistently rank at the top in food waste, such healthy behavior is undoubtedly the result of stay-at-home orders that reduced the frequency of grocery trips. Respectively, the latter percentage is likely a buildup of healthy eating trends in recent years boosted by recent health concerns. 


Figure 1: % of Consumers Comfortable in Public (Accenture



Those health concerns can be analyzed more closely when observing a segmented analysis of how many consumers are actually comfortable leaving home. Data shows that 60% of consumers are still uncomfortable with in-person grocery and pharmacy trips, and 71% are uncomfortable visiting both shopping centers and non-essential retailers.


As a result, at-home experiences are now taking the  lead. Business Wire has compiled data from investment bank Harrison Co. showing “that $10 billion annually could leave the club sector, much of it for home fitness options, reflecting changing consumer sentiment surrounding health club safety and cleanliness.” This move, among others such as at-home cooking and baking, means pre-COVID service providers will face challenges even after the pandemic as consumers will likely still be uncomfortable.



Regulations in Retail


People are scared, but they are completely justified. As COVID has proven serious implications, major governments have enforced public health measures to protect their citizens, many issuing declarations of emergency. These include complete closures of non-essential businesses, mandatory mask measures, quarantines, widespread testing, among other measures. These new rules, however, have severely hurt the retail industry by separating consumers from retail environments.


China was the first country to truly feel the devastation of the pandemic. They locked down their Zhejiang Province and Hangzhou immediately. The World Economic Forum reported that China underwent an extreme effort to prevent COVID-19’s spread, with aggressive use of big data and quarantines. However, it wasn’t enough, and soon, Italy began to suffer. They were on a government mandated lockdown for 67 days during which daily deaths skyrocketed. Europe immediately followed with France, Greece, and Spain. The pandemic started to gain momentum in the United States around March, with the United States federal government, under president Trump, declaring a state of emergency, according to NCLS. And on March 11th, WHO officially declared the COVID-19 outbreak a pandemic.


It is clear that with strict public health regulations come a separation of customers from retail environments — that is the cost of “flattening the curve.” Non-essential businesses, specifically in the services sector, truly felt the burden of the shutdown. The City of Memphis expressed that hair salons, restaurants, gyms, car washes, retail without curbside delivery, and entertainment are being left almost without income. They are, however, left with expenses and piling debt. In the United States, small businesses have lost anywhere from 25% to 85% of their revenue, according to credit card processing data from Opportunity Insights Economic Tracker. Businesses have also suffered in European countries, especially in Italy. The GED Project reports that industrial production collapsed in March 2020, and that the economy will lose almost 10% of its GDP just this quarter. 


Figure 2: COVID-19 Restaurant Restrictions in U.S. (Brookings



Furthermore, restrictions such as travel and entry bans have been set in place in many countries. The lack of tourism due to these restrictions directly affect retail. The OECD (Organization for Economic Cooperation and Development) estimates that the international tourism economy will decline around 60-80% in 2020. Tourism has rippling effects in retail industries of the country benefiting from that tourism. Professor Stynes claims that there are definite “multiplier effects” when it comes to how tourism affects retail, and that is because tourism spending is closely correlated to retail spending. Therefore, when tourism is suffering at levels not seen for decades, the retail sector of many countries is dramatically impacted.


The separation of consumers from retail environments can be further seen in the closure of malls and shopping centers, where thousands of shoppers typically gather to spend their hard earned money. Without having the access customers on this front, revenue streams will suffer. 

As CNBC reports, less foot traffic in these shopping areas lead to less customers interacting with products, resulting in less spending. Businesses who have relied on this traditional sales strategy will be permanently hurt. 



Digital Adaptation


Corporations, however, are adapting to these changes. In recent years, e-commerce has trail-blazed the retail scene, resulting in massive losses for brick-and-mortar operations. Furthermore, the Harvard Business Review highlights that the pandemic has “accelerated [those losses] at a staggering speed.” Retailers have adapted in two main forms: implementing new distribution channels and innovating existing digital platforms. 


As of May 14, McKinsey reported a 57 percent growth in grocery delivery services. Undoubtedly, the launching of same-day delivery programs from Walmart, Target, and Kroger — among other Fortune 500 retailers — are the foundations of this upward trend. Precisely, in late-April, Arkansas-based Walmartpromise[d] to deliver online orders in less than 2 hours” and would expand this service across almost 2000 of its nationwide locations. 


Leading grocers are not only offering improved delivery practices, but also enhanced omnichannel methods. A common form of omnichannel distribution  — curbside pickup — aims to focus on the buy online, pick up in store (BOPIS) model. With BOPIS, consumers can browse through millions of products, use instant online checkout, and choose a convenient time to pick up purchases all within the coronavirus health regulations. 


Figure 3: Growth of Digital Distribution Channels (McKinsey)

Adapting to consumer needs by shifting distribution channels is a feat of its own, but if retailers want to compete with e-commerce giants like Amazon, they must innovate their digital platforms. The HBR claims, “customers don’t expect a virtual experience to be like an in-person one — nor do they want it to be.” Before the pandemic, customers were able to  pick the freshest batch of grapes or try on different styles of jeans, giving them the confidence to purchase a product. 


Though corporations have adapted by moving to digital platforms, modern consumers need personalized service and AI search tools to help make their next purchases. In a climate where competitor products are just a click away, retailers have no choice but to provide both quality products and customer service product reviews as recommendations are driving factors when making purchase decisions. Attempts at digitalization can only do so much, as the pandemic will inevitably result in long-term damage. 



Irreversible Damage


Specifically, businesses affected by the pandemic are incurring their highest level of debt. In fact, corporate debt as a percentage of the U.S. GDP is now at 47%, which is half the size of the economy, according to Forbes. This is a staggering statistic that lends insight into why so many retailers are declaring bankruptcy, pursuing debt restructurings, and searching for alternative financings. Coming out of one of the strongest economies in decades, these companies are shifting from thriving to surviving. Many governments, specifically the United States, have rapidly stepped in to provide relief for corporations as well as small businesses through various programs.


Looking at corporate bonds, total corporate debt has been trending upwards in recent years, with analysts predicting this will continue at an even faster rate due to COVID-19. Forbes also revealed that the rating agencies Moody’s and S&P are further downgrading bonds at their fastest rate since ‘08, with the downgrade to upgrade ratio of 3:1. NPR reported that annualized, the United State’s GDP has fallen 32.9% and the unemployment rate currently stands at 10.2%. Mckinsey estimates that between 1.4 to 2.1 million small businesses will be permanently closed as a result of the first 4 months of the pandemic alone.


Figure 4: Growth of Non-Financial BBB-Rated Corporate Debt in U.S (Forbes



Over 3,600 companies have filed for bankruptcy in the first 2 quarters of 2020. Just in April, there have been over 560 chapter 11 bankruptcies, an increase of almost 27% from last year, according to the American Bankruptcy Institute. These debt restructuring bankruptcies showcase the growing threat of coronavirus on the retail sector, specifically brick and mortar stores that can’t support their operating costs. Retail powerhouses like Neiman Marcus, J. Crew, and True Religion are examples of retailers that have all been brought to their knees as COVID-19 forced them to file for chapter 11 bankruptcy. Alpha Trends reveals that a fewer percentage of companies have filed for chapter 7, a much more serious and permanent bankruptcy that involves liquidation of assets -- these include IntegraMed America, Garden Fresh Restaurants, and Art Van Furniture. This pandemic has impacted almost all businesses, damaging most, and permanently erasing some.


Figure 5: Top 10 Industries by Bankruptcy Filings 2020 (Fortune)