Resurging COVID-19 Cases and Restrictions Hit Retail Stocks

It’s a precarious situation in retail.

Kohl’s, Macy’s, Nordstrom and other retailers with big brick-and-mortar operations took a hit on Wall Street on Wednesday, amid investor fears that rising cases of the COVID-19 Delta variant will deter shopping at stores for back-to-school apparel and supplies and holiday gifts.

At the close of the stock market on Wednesday, Macy’s Inc. shares fell 3.24 percent to $16.73; Kohl’s Corp. slipped 3 percent to $49.75; Nordstrom Inc. dropped 3 percent to $33.57, and Dillard’s Inc. fell 6.6 percent to $164.68. Target Corp. and Walmart Inc., which have both fared well through the pandemic as retailers selling “essential” products, were only down 0.64 percent and 0.68 percent, respectively.

The escalating COVID-19 crisis had the reverse effect on certain internet retail stocks. Shopify rose 2.2 percent to $1,555.52; Alibaba rose 1.7 percent to $200.71, and Netflix was up 1.25 percent to $517.23.

Some pundits think Wall Street is reading the retail market wrong.

“We don’t believe Wall Street understands or recognizes the breadth and depth of the consumer spending boom we are seeing, nor do they understand the fundamentals for sustained spending for now, back-to-school and through holiday and well into next year,” said Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm.

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“And let’s say COVID-19 comes back, people have already gotten used to switching from physical store channels to digital store channels. If things [stores] start to get close down again, and we don’t think there will be mass closures like last year, it won’t be the first digital rodeo,” said Johnson.

“The consumer is very healthy right now. Consumption is at pre-pandemic levels. It’s a strong recovery on the part of the consumer,” observed Steve Sadove, Mastercard senior adviser and former chief executive officer of Saks Inc. “At this point we have not seen an impact from the Delta variant in terms of substantially slowing down the consumer. It could have an effect in hot spots on a local basis, but the consumer is healthy and I don’t think they want to be held back. I don’t see another dramatic blowback in consumption. There will be flare-ups and hot spots, but retail will remain healthy as we get more into the back-to-school and holiday business.”

Veteran retail analyst and blogger Walter Loeb has a different point of view. “Business has been better than expected, partly because of back-to-school and students returning to classrooms soon, but I am very worried about business going forward. One reason is the COVID-19 situation, but I am also concerned because prices are rising and will rise more, social media advertising costs are rising so stores will have to use other ways to advertise, and that will affect business,” Loeb said. “A 7-oz. tube of toothpaste is now 5.5 ounces. That’s inflation. I hear dresses in some cases are going up 35 percent. Ralph Lauren is rising prices substantially. That also is a deterrent to shopping.

“But most importantly is the fact that people are getting scared again to go out,” Loeb said. “And companies have been planning to have employees return to the office, but that probably won’t be the case so much anymore. People are not expected to go back to the office now. The Delta variant is causing everyone to be uncertain about the immediate future. It’s hovering over us all. A doctor told a friend of mine, who is vaccinated, not to go out to lunch because the Delta variant seems to be more aggressive than the original strain.”

Still, when asked to comment on Wall Street’s reaction to the resurgence in COVID-19, Johnson replied, “A lot of stock market reaction doesn’t really reflect what’s been a strong, broad-based consumer-led recovery with all the appearances of being sustained over time. Consumer fundamentals are so strong. There’s employment growth, wages are rising, disposable personal income — the single biggest driver of retail sales — is up, and household balance sheets are in the best shape in history. The household debt service ratio is down to 8.3 percent, from the 2007 right before that recession started when it was about 13.5 percent. People have so much savings in their household accounts, and combined with job growth, wage growth, federal stimulus, the drivers of retail spending are running on all eight cylinders.

“The only negative on it is gasoline. It’s $1 a gallon more than a year ago and that takes $15 billion out of consumer spending per month.”

On Tuesday, New York City Mayor Bill de Blasio mandated proof of COVID-19 vaccinations from employees and customers of indoor eateries, gyms and entertainment centers, one day after he mandated vaccinations for all new hires by the city. The new order goes into effect Aug. 16 and will begin to be enforced with inspections on Sept. 13.

The mayor did not impose any COVID-19 restrictions on stores or malls, but the next few weeks will be anxious ones for retailers, as the city continues to get feedback from businesses and health professionals on how to frame and finalize its COVID-19 policy. The vaccination mandate and other restrictions could be imposed on a wider variety of businesses. As the mayor said at his press conference Tuesday morning, the city is “very purposely focused on where folks are in close proximity — eating, drinking, exercising, whatever it may be. This is a very, very important place to make this change.” But he also said, the city “will now look at other areas as well, other types of businesses and absolutely consider whether it makes sense to do something similar.”

Amid rising cases of the Delta variant, retailers nationwide are bound to ramp up e-commerce efforts and online marketing, step up social distancing and buy online, pick up in store services, and double up on sanitizing stores. New York City retailers will have the additional task of proofing their restaurant workers and customers seeking to dine in their restaurants for COVID-19 vaccinations.

“We will and have continued to follow CDC guidelines and state mandates throughout the pandemic,” said Darcy Penick, president of Bergdorf Goodman, a division of the Neiman Marcus Group. “When the mandate goes into effect in September, BG’s restaurant will require proof of vaccination from both customers and workers. The safety and welfare of our associates and customers is our top priority, and we’re committed to creating a welcoming environment where everyone feels like they belong.”

The L’Avenue at Saks restaurant inside the Saks Fifth Avenue flagship in Manhattan will do the same. “We are following the lead of local government and health officials, and we expect that guidance to reflect community-specific concerns,” said a Saks Fifth Avenue spokeswoman. “We will abide by all local ordinances upon enforcement. The health and safety of our customers, associates and communities remains our top priority.”

Saks is asking all employees returning to its offices in lower Manhattan to be vaccinated. As far as workers at the Saks stores across the country, responses to the pandemic are guided by local ordinances. L’Avenue workers are required to wear masks, take temperature checks and disinfect surfaces.

The staff at the Stella 34 Trattoria restaurant inside Macy’s Herald Square are also required to wear masks, take temperature checks and disinfect surfaces. Macy’s had no comment on the New York City mandates specifically, but a spokesman did say that as of today, Macy’s Inc. requires masks for all colleagues in high risk (red) and substantial risk (orange) level states as defined by the CDC or as mandated by local orders.

“For our customers, our current policy remains unchanged,” the spokesman said. “Masks are recommended for vaccinated customers in our store locations, except where state or local mandates require them. Masks are required for unvaccinated customers in all stores.”

Gap Inc.’s CEO Sonia Syngal maintains a strong position on vaccinations. “The most important thing we can all do to keep ourselves and each other healthy is to get vaccinated,” Syngal wrote in a letter to employees. “While we recognize that this is a personal decision, there is simply no better way to save countless lives and protect the sustainability of the economy and our business.

“Importantly, the ability to safely come together also fuels our culture and enables our ‘future of work’ vision — rooted in intentional connection and ‘moments that matter.’ With this in mind, you can expect to see us double down on our vaccine advocacy.”

Syngal said since the beginning of the year, Gap sent 3.5 million masks and face coverings to nonprofit community organizations, distributed science-based education to all employees, including critical information on life-saving vaccines, offered vaccine-related PTO to employees in multiple countries, and established on-site COVID-19 vaccination clinics at customer experience centers and the office in India where teams were without ready access to vaccines.

Starting Sept. 7, any Gap employee who enters company office buildings in the San Francisco Bay, Albuquerque and New York City hubs must show proof of vaccination. “Even if your job does not ordinarily require you to work on-site, if you need to come into the office after Labor Day, you will still need to provide proof of full vaccination before attending mandated meetings or trainings in person unless a reasonable accommodation is approved,” Syngal wrote. Individuals are considered fully vaccinated two weeks after their second dose of the Pfizer or Moderna vaccines, or two weeks after Johnson & Johnson’s single-dose vaccine.

Gap’s mask policy adheres to local and state mandates, including enforcing mask-wearing at the Bay Area offices and stores. In all other locations, only unvaccinated employees will be required to wear masks indoors, except in jurisdictions where masks are required by law. Syngal noted that this week seven San Francisco Bay Area counties issued an indoor mask mandate for all individuals, vaccinated or not.

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