How Much Will Coronavirus Impact your Retail Sales in 2020
We are forecasting a decline in discretionary spending of 16% for the 2020 Calendar Year. The last time we had a Global Pandemic was 102 years ago with the Spanish Flu. Hence, there are no precedents for forecasting retail sales, where 70% of the population will either catch it or be vaccinated against Coronavirus.
A friend is visiting her daughter in Copenhagen this week, she reported all the universities, schools, restaurants, and most shops are closed, people are working from home, and the streets are deserted, this is repeated in Italy, Spain, France, and many other countries in the world.
For Retailers, the most immediate step is to redo your budgets and cashflows on the basis of a substantial sales decline, then trim your costs, work through the impact on your cash burn with your bank/financier and decide what to do with excess stock already committed to. In the travel industry, United Airlines President Scott Kirby offered a “dire scenario,” forecasting a revenue drop of 70% in April and May, 60% in June, and remaining depressed for the rest of the year (Wall Street Journal 15.03.2020).
As a large or small retailer, what should you forecast for sales for the remainder of the 2020 Calendar Year? We have provided discretionary spend retailers our sales forecasts for the rest of the 2020 Calendar Year, which you can use as a starting point for redoing budgets, buying plans, and identifying all the actions you may need to take – hope for the best method for the worst.
By redoing your 2020 budgets immediately and monitoring sales on a weekly basis, you are ready to move as soon as sales drop.
Detailed below is our projected drop in sales.
How did we arrive at our Projections?
We see consumer behavior going through 3 phases over the next several months.
Panic: As Coronavirus accelerates, this escalation will be accompanied by a substantial drop in discretionary spending. As schools and universities close, people work from home, and retail and restaurants either close or have subdued trading. There will be, in our view, a 50% drop in retail spending for a brief period caused by panic, fear, and survival.
Acceptance: After a 4 – 6 weeks consumers will accept the situation we are all in and will try and introduce some normalcy into their lives, sales will recover to around 80% of last year’s sales, we predict this will continue till we hit the hope phase. During the acceptance phase, eCommerce will be at the forefront of retailers’ sales efforts along with buying online pick up in-store.
Hope: The Hope Phase will arrive when a cure for Coronavirus is found and announced hopefully by July 2020, and consumers can then see the belief that a treatment will be available by the end of the year or early 2021. At this stage, retail sales will slowly recover. We recommend 90% of last year’s sales be projected. Alternatively, when 70% of the population has caught Coronavirus, then this is called “Herd Immunity” either through vaccinations or exposure, the virus finds it difficult to spread through the rest of the population. This strategy being adopted by the UK, we believe, will be catastrophic for retailers and the economy.
Of course, this assumes we are going through a technical recession if this turns out to be a full-blown “real recession” then it’s anyone’s guess where we will end up
Overstock Ready Reckoner:
Most retail companies are locked into forwarding purchasing for the new season, so assuming retailers are committed to June 2020 with orders,, the results would be damaging not only to cashflow but to margins via discounting to clear. Retailers are heading into a perfect storm. So if as a retailer, your turnover was $132m in 2019, we expect sales could decline to $111m with an excess stock of $6.37m by July 2020.
Summary & Timetable:
Here is our suggested timetable, so you are prepared
- Complete Retail Coronavirus Crisis Budgeting and Cash Burn Analysis by 30th March 2020 at the latest.
- Review Exposure to Overstocks and potential margin impact
- Review staff requirements and staff well being
- Contingency Plans – rent deferment, bank discussions, buying, store closures and so on
- Read my previous post, “Coronavirus – 5 Practical Things Retailers Can do Today.”
Warning: Our projections are based on our reading of the market and are meant only as a reference point to calculate your forecasts. It is each retailer’s responsibility based on their segment, location, competitor landscape,, and resourcing to forecast for their particular retail business. No responsibility is taken by 6one5 & William Rooney for the accuracy of our forecasts.