Sunday , September 27, 2020

Store Failures Will Spike as Merchants Wrestle With Covid-19’s Wreckage, a Researcher Predicts

Despite tentative signs of an economic recovery from the coronavirus-induced depression, some experts are forecasting a gloomy outlook for store closures as the year plays out and merchants struggle with debt loads and a consumer shift to e-commerce.

At least 20,000, and as many as 25,000, stores will likely shut down permanently this year as a result of the pandemic’s impact, according to a study released Tuesday by Coresight Research. That number includes fresh closings as well as failures by outlets that had temporarily closed during quarantines, the New York City-based research firm says. It is not net of new stores opening their doors between now and year’s end.

This latest forecast contrasts sharply with the 9,821 stores Coresight estimates closed in 2019 and represents a dramatic increase from the 15,000 closings the firm predicted in late March. Mall retailers are particularly vulnerable, with anywhere from 55% to 60% of the failures likely to occur in these shopping meccas, the firm forecasts. While some experts fear a second wave of the novel coronavirus later this year, Coresight says it did not take account of this possibility in its calculations.

The dour prediction comes as stores around the country have been reopening their doors since early last month and chains like Abercrombie & Fitch and Gap are reporting the recapture of much of their 2019 volumes. Such recoveries are not likely for many retailers, Coresight says, mainly because of skittish consumers wary of contracting Covid-19 inside stores and burdened with financial troubles of their own. “We expect that a return to pre-crisis levels in offline discretionary retail sales overall will be gradual, as we expect consumer confidence, demand, and spending to be short of normal for some time,” the report says.

At the same time, payments companies are reporting a rebound in spending, though their numbers are still far short of pre-pandemic levels. Mastercard Inc. on Tuesday reported its U.S. switched volume was down 8% year-over-year for the week ending May 28, level with the previous week and a marked improvement from the 23% plunge seen for all of April.

The improvement, the network says, marks a transition from a “stabilization phase” to a “normalization phase,” a time when stay-at-home orders and other mandates are lifted or relaxed and “spending begins to gradually recover.” The recovery, however, may be driven more by online activity than by visits to brick-and-mortar retailers. “We continue to see strong growth in card-not-present volumes, excluding online travel-related spend,” Mastercard’s release says.

Last week, Visa Inc.  said its U.S. payments volume in May had fallen 5% from May 2019, but that was an improvement on an 18% plunge in April.

Coresight’s forecast indicates a sharp rise in store failures as the year wears on as merchants contend with the consequences of weak demand, rising chargebacks, and damaged balance sheets. As of June 5, the firm had logged a total of 4,005 planned closures, far short of the 7,222 it calculated at the same point in 2019. “We do not expect the year-to-date trends to be representative of the full-year pattern for store closures,” says Coresight’s report. “The total year-to-date permanent store closures in 2020 are currently significantly lower than this time in 2019 … but we predict that there will be a major uptick on the back of discretionary demand levels being below normal.”

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