Retail’s Silver Linings and Dark Clouds

·4 min read

Fashion is whistling past the rest of the pandemic — or trying to.

Having taken its lumps early with lockdowns, furloughs and a rush of bankruptcies, the industry is pushing the comeback and finding a willing coconspirator in the consumer.

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Retail is moving on — tallying up late summer sales gains, racing toward big-ticket IPOs, looking toward a strong holiday, celebrating the in-person New York Fashion Week, moving to bright colors and more.

But the world is still reeling and even if the industry has proven itself to be agile enough to bounce back, that agility will continue to be tested. On top of COVID-19, supply chains are tangled up and there are a number of growing concerns out of China — which was fashion’s factory and then its number-one consumer and now could be changing again.

The powers that be in China have been careful to check the influence of e-commerce giant Alibaba, are now cracking down on celebrity and are dealing with a new round of stock market jitters.

Global stocks started this week with a sharp turn downward after investors were spooked by the precarious position of Chinese property giant Evergrande, which is laboring under some $300 billion in debt and seeking to sell assets.

On Monday, the Dow Jones Industrial Average dropped 1.8 percent, or 614.41 points to 33,970.47. Among the fashion and retail companies logging declines were Tapestry Inc., down 5.9 percent to $38.01; Alibaba Group, 5.4 percent to $151.49; Levi Strauss & Co., 3.8 percent to $24.42; Farfetch, 3.6 percent to $39.10; PVH Corp., 3.2 percent to $106.42; Capri Holdings, 3.2 percent to $50.94, and Amazon.com, 3.1 percent to $3,355.73.

That’s a splash of cold water for some of the optimism last week.

The worries of a property giant across the world might be remote for the U.S. consumer today, but as COVID-19 has reminded everyone, the world is more connected than ever.

For now, at least, it seems there’s a little cushioning for the consumer and continued reason for optimism.

Jack Kleinhenz, chief economist at the National Retail Federation, said last week: “The consumer remains rock solid despite the trifecta of macroeconomic headwinds we’ve seen this year, including tapering off of government stimulus, elevated COVID-19 infections and ongoing supply chain challenges in the form of shortages of labor and goods.”

August sales at department stores rose a seasonally adjusted 2.4 percent from July and increased 28.6 percent from a year earlier. Apparel and accessories stores inched up 0.1 percent from July and were up 38.8 percent from a year ago. And the non-store retailer category, which is dominated by e-commerce, advanced 5.3 percent from July and was up 7.5 percent from a year ago, indicating that even as stores bounce back, the web is still growing.

“It would appear that the U.S. consumer remains alive and well, even in the face of the delta wave,” said Stephen Stanley​, chief economist at Amherst Pierpont. “Even if the September performance for household spending is muted by the virus, we should be poised for a stellar fourth quarter, by which time the Delta wave will have retreated and Christmas/holiday spending should be stellar.”

AlixPartners projected last week that holiday sales would rise 10 percent to 13 percent this year, making for the strongest holiday run since 1999.

And a survey by the consultancy found that 88 percent of U.S. consumers plan to spend the same or more this year.

“Our message to retailers is: ‘This holiday season is yours to lose,’” said Joel Bines, global coleader of AlixPartners’ retail practice. “There’s unprecedented pent-up demand out there, consumers have lots of money in their pockets, in part due to recent government programs, and even the rise of the Delta variant, while certainly concerning, doesn’t seem poised to put a damper on things, thanks in part to the big increases in online shopping this past year.”

But just how much trouble will ultimately be too much trouble for retail?

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