Shadow of economic uncertainty

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Shadow of economic uncertainty

By Mark Hamstra - 07/10/2020

One of the biggest mysteries of the COVID-19 pandemic is how severe the economic impact will be, and how long it will take to recover.

While some predict a “V-shaped” recovery in which the economy returns to pre-COVID-19 levels quickly, much like after a severe storm, others predict a slower comeback, more like the steady, years-long comeback that followed the Great Recession of 2008 to 2009.

The pending economic downturn will be the “back-end whammy on business,” said Neil Stern, senior partner at consulting firm McMillan Doolittle. “As things start to ‘normalize,’ we will also be facing a significant recessionary period. The same trends in the last recession — higher usage of private brands, trading down to value-driven retail [such as Aldi, Walmart, Dollar Stores, etc.] will likely reemerge.”

Stern also said that mainstream retailers will be better prepared for the downturn by ensuring that they have the right opening price points and are emphasizing value, noting that food and drug retailers will benefit from ongoing reduced restaurant spending.

In a recent webinar presented by consulting firm IHL Group, Greg Buzek, founder and president of the host company, described a “transfer of wealth” that has occurred during the pandemic. In addition to the shift in consumer spending away from restaurants and malls to food and drug retailers, spending also has shifted away from smaller retailers toward such larger, big-box stores as Walmart and Target that have been able to remain open throughout the lockdowns.

Buzek estimated that nearly 300,000 retail and hospitality locations would close in 2020 due to the pandemic, more than two-thirds of which will be single-store operations.

The closure of thousands of restaurants, combined with high unemployment and more frugal behavior on the part of consumers, will translate into more traffic for food and drug retailers, convenience stores and mass merchants.

A second wave of the coronavirus infections also seriously could impact the economy, although Buzek said governments and businesses will be better prepared if that happens. Part of the reason the initial wave of the pandemic caused so much economic devastation was that so little was known about exactly how it spread, how contagious it was and how deadly it could be. Businesses have emergency preparedness plans for natural disasters, he said, but the COVID-19 pandemic spread so quickly and on such a large scale that it was impossible to prepare for it.

“No one had a contingency for the entire world economy and supply chain to just shut down,” Buzek said. “Companies are preparing for that now and will have plans in place when the next pandemic or the second wave comes.”

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