27/05/2024 6:42 PM


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4 reasons why retail in the US won’t be bouncing back like in China

Pedestrians wearing protective masks walk past an LVMH Moet Hennessy Louis Vuitton SE in the Central district of Hong Kong, China, on Tuesday, Feb. 11, 2020.

Paul Yeung | Bloomberg | Getty Images

While America’s retail industry is looking to China for clues about how shoppers are rebounding from the coronavirus pandemic, there are shortcomings to using the region as a blueprint for the U.S.

The spread of Covid-19 — which originated in Wuhan, the capital city of Hubei province — has forced bricks-and-mortar shops across the globe to shut down and put millions of people in the retail industry out of work. As of Thursday morning, there have been more than 2.6 million cases reported globally, according to the latest data from Johns Hopkins University. 

In China, already, the consumer “is back with a vengeance,” Coresight Research Chief Executive and founder Deborah Weinswig said in an interview. “There is a pent-up demand.” 

But the return of retail in the U.S. will likely play out differently, as unemployment keeps surging, nonessential stores remain shut for longer periods of time and international travel is still limited. 

“We have 50 states acting as 50 countries,” Weinswig said about the U.S. “Eleven percent unemployment also never happened in China.” 

Here are four reasons retailers should not be banking on retail to bounce back in the U.S. like it has in China. 

Little red envelopes

Masked shoppers are lining up to return to stores in China — hoarding cosmetics and flashy new outfits — offering retailers a glimmer of hope that the same patterns will play out across America. 

But a spike in post-pandemic spending activity in China can be attributed, in large part, to the fact that many consumers have been holding off on spending their Chinese New Year gifts. Families in China will typically send around red envelopes filled with cash to ring in the New Year, per tradition. But the Covid-19 pandemic forced the shutdown of many cities across China right as Lunar New Year celebrations were set to begin. 

That said, many Chinese consumers have spent their time at home during quarantine, sitting on that money until stores open back up, according to AlixPartners managing director Jian Li, who is based in Shanghai. “The consumer has spent a lot of time thinking … of what to buy.” 

That’s not the case — at least for many consumers — in America. 

“One thing we need to be careful of when we are looking to, particularly, China is recognizing that there was a backlog of demand because many did not experience Chinese New Year,” said Steve Barr, U.S. retail and consumer sector leader at PwC. “That is one of, if not the, biggest expenditures for the Chinese.” 

“I think we need to be mindful as we look to that experience as an early indicator,” Barr cautioned. 

Chinese tourism on hold 

Luxury retail is looking strong across China, post-lockdown. 

Louis Vuitton-owner LVMH has said shoppers flocked to its stores in mainland China when many locations reopened last month. Sales in China for the majority of LVMH’s brands, like Dior and Fendi, turned positive compared with a year ago during the back half of March, Chief Financial Officer Jean-Jacques Guiony said when the company reported earnings last week. 

This month, some of LVMH’s brands in mainland China have grown sales more than 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, Guiony added. 

But it might take longer for luxury retail to bounce back in the U.S., especially with international travel on hold. In a normal economy, Chinese visitors typically make up the highest tourist traffic and spending in the U.S. Companies ranging from department store chain Macy’s to high-end jeweler Tiffany & Co. rely heavily on Chinese tourism, especially at their flagship locations in New York City. Tiffany has said foreign tourists account for a low-double-digit percentage of its U.S. sales. 

But for now, Chinese tourists “are not going anywhere,” Coresight’s Weinswig said. “The outbound Chinese tourist is staying put.” 

Store closures in the US drag on 

Retail in the U.S. has already been shut down for longer than in China. And that could have lasting implications — including more permanent closures and consumers getting more adjusted to buying online. 

Store closures lasted as little as four weeks across some parts of China, according to tracking by Coresight Research. Lululemon, Apple and Uniqlo started reopening some of their China locations the week of Feb. 16. The closures in China began the week of Jan. 19, when the country imposed a tight lockdown on the Wuhan area beginning Jan. 23. 

The U.S., however, is in the midst of its sixth week of many retail stores that sell nonessential goods such as apparel sitting dark. A wave of closures started March 13, when Patagonia announced it would be temporarily shutting all of its stores. 

Now, on a state-by-state basis, the U.S. is trying to figure out what happens next: Is it too soon for the mall to reopen? Can people safely go back to coffee shops? What about the nail salon? The gym? 

President Donald Trump said earlier this month he was going to be “authorizing” governors to produce plans to reopen their states. Some think it is far too soon, without ample testing. But some, like Georgia and South Carolina, are racing to reopen sooner, sparking protests. 

“Even as stores reopen here, we don’t know what that ramp-up will look like,” BMO analyst Simeon Siegel said. “It’s going to be much harder to figure out.” 

Coresight is estimating many stores will remain shut in the U.S. until as least May 10, even calling that optimistic. In a more likely scenario, it said much of retail stays dark until June. 

Unemployment in the US surges 

In the U.S., all of the job gains since the Great Recession have been wiped out, with 26.45 million Americans filing for unemployment over the past five weeks. 

Without a paycheck, many consumers will be much more reluctant to head to the mall. Retail sales already plunged 8.7{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in March, the biggest decline since the government started tracking the series in 1992, according to the latest data from the Commerce Department. Those numbers are expected to be worse in April. 

In China, for comparison, roughly 5 million people lost their jobs during the first two months of 2020. While the losses are still unhealthy, analysts say the country has done a better job of keeping people at work. In many instances, companies are reducing pay before taking more drastic measures, such as furloughing, one analyst said. 

“There has been a strong comeback in China,” AlixPartners’ Li said. 

Read more of CNBC’s coronavirus coverage here. 

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