How much pent up shopping demand is there?

Discussion
Photo: Kohl's
Jun 10, 2020
George Anderson

When retail stores across the country began closing to customers back in March, the hope was that Americans would come back and make up for lost time and sales when states began to let merchants reopen. Based on at least some initial reports, many merchants are pleasantly surprised to find out that there was more pent up demand for goods than they expected.

American Eagle Outfitters, Kohl’s and Macy’s are three chains that have reported that, despite fewer hours, limited shopper capacity and concerns about the spread of the novel coronavirus, people are showing up to shop.

American Eagle reported last week that the 556 stores it has reopened are generating about 95 percent of the sales the retailer reported last year. At the same time, digital sales which picked up significantly while stores were closed, have remained strong. COO Michael Rampell told analysts on the retailer’s first quarter earnings call that digital sales for the company’s namesake chain were up about 50 percent on a quarter-to-date basis and that Aerie’s online business was up more than 100 percent.

Kohl’s has seen sales at reopened stores in late May grow from about two-thirds of their pre-pandemic level to three-quarters this month, according to a Wall Street Journal report.

Macy’s, which announced that it has raised $4.5 billion in new financing to give it the liquidity it needs to move ahead, has seen sales of about half what they were before the pandemic hit. That’s an improvement over the 85 percent drop that took place while stores were closed. The retailer has reopened roughly 450 of its stores to date.

Even with some hopeful signs that retail is ready to rebound in a big way, there are reasons for concern. Confirmed cases of COVID-19 are on the rise in 19 states, while seven states are remaining steady and 24 percent are seeing declines. With states reopening, nice weather and large rallies to protest racial inequality in cities and towns across the country, there are concerns that virus cases will spike.

CNN reports that Arizona, which recently began letting businesses reopen to the public, has issued a warning to hospitals to limit elective surgeries, with 76 percent of beds now occupied in intensive care units across the state. At the peak of the virus’s spread in the state, 78 percent of the ICU beds were occupied. North Carolina, which has also been reopening in phases, recently reported a single-day high for COVID-19 hospitalizations at 774.

DISCUSSION QUESTIONS: What are your expectations for retail sales as stores reopen to the public? Should retailers moderate their reopening plans based on the expectation of another major spike in COVID-19 cases?

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22 Comments on "How much pent up shopping demand is there?"


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Mark Ryski
BrainTrust

This is far from over. While it’s true that stores are opening and some of the early results are encouraging, occupancy limits, lines-ups to get in, and a dramatically different shopping experience will all be persistent headwinds. As someone who monitors retail traffic into brick-and-mortar stores, the data I see on a daily basis shows that store traffic is still significantly down. Retailers definitely need to be caution about the short/mid-term and I’d recommend taking a defensive posture. The spike in COVID-19 cases in some 20 states is disconcerting.

Cathy Hotka
BrainTrust

Agree completely. Demand is down not just because people don’t need new work clothes, but also because everyone adopted frugality as a lifestyle. The optimists who think that COVID-19 is over and pent-up demand will fill stores are simply wrong.

Neil Saunders
BrainTrust

We need to be careful in not getting carried away with some of these announcements. Macy’s had expected 20 percent of trade to come back and found that 50 percent came back. That’s way better than expectations, but it’s still a very suppressed level of sales.

That said, there is some pent up demand in the retail economy which is being released when physical stores reopen. However, the spoils are not evenly distributed. Off-price has been a major beneficiary, with trade in many shops above normal levels. Comparatively, department stores and mid-market apparel are building more slowly.

In short, retail is making progress but some are progressing faster than others!

Richard Hernandez
BrainTrust

I think this will be interesting to see. One of the biggest tests we will see in the short term is the opening of Mall of America today. I have been in malls to observe over the last few weeks, and I have seen a minimal amount of shoppers in stores (and all wearing masks I might add), What I did not see is employees – there were minimal employees in a multi-department department store and the woman manning three separate departments told me that employees were still hesitant to return to work because of COVID-19.

Shep Hyken
BrainTrust

People want to shop, but are they going to buy? Many consumers have been furloughed or are on unemployment. That is going to dramatically impact sales for some retailers. To think people are going to come in and make up for what they haven’t spent in the last three months is not likely to happen.

As for planning on the expectation of another major spike in COVID-19, retailers must have a different plans in place for different scenarios. Nobody could have anticipated a worldwide pandemic, yet we adapted and learned. My suggestion is be prepared for the next “Doomsday Scenario.” What will happen if…? Hope for the best, but plan for the worst. Be prepared!

David Naumann
BrainTrust

Opening physical stores will definitely help boost retail revenues, especially for apparel, as many consumers like to try on clothes before they buy. However, people have learned that they can live with less and many are still unemployed, which will dampen the sales growth.

Regarding the reopening of stores, brands should follow the guidance of their state and local government guidelines and be prepared for future COVID-19 spikes that may warrant store shutdowns.

Dick Seesel
BrainTrust

The American Eagle numbers seem to be an outlier compared to Macy’s and Kohl’s. I’m not sure whether it’s due to pent-up demand or aggressive efforts to clear seasonal inventory before converting to Back to School. (There is a big banner on the American Eagle website for “Up to 60% off Everything.”) Other stores’ numbers look “less bad than expected,” but still bad — at least retailers have generally done a good job offsetting store closures with more online sales and outside pickup services.

Scott Norris
Guest

Reading through California’s Department of Education guidelines released yesterday for reopening schools in the fall, and hearing about similar considerations up here in Minnesota – no one should be expecting anything that looks like a normal Back to School season. Distance learning will likely still be the majority of instruction, especially for middle and high schools – and even elementary kids will probably only be in buildings two days per week. This also means parents will be needing to continue to work from home, too – probably for the entire 2020-21 school year.

Bob Phibbs
BrainTrust

If we look at China we see – without a vaccine – retail has reopened and even Shanghai Disney is up and running. Yes there is a lot we don’t know and a lot of conflicting information. Retailers are doing their due diligence. If the public goes to the beach, eliminates social distincing in their personal lives, and throws care to the wind, it won’t be retailers who made a spike happen, it will be the general public.

Suresh Chaganti
BrainTrust

As the situation eases, I think pent up demand will be released in the “experiences” category. Restaurants, spas, and hospitality may be winners. These are the ones people have been missing.

Given all the big box stores and grocery stores that have been open all along, along with several online options, there will not be a significant uptick in categories that could be bought online. If anything, with the opening of physical retail, the online share may dip – at least temporarily. Of course, all of this depends on COVID-19 being stable and there being no major second wave. We are not out of woods yet.

Jeff Sward
BrainTrust

I am hopeful but also skeptical about retail sales. And I think a second wave, in some form in some areas, is already manifesting itself. As far as retailers reporting reopening numbers, I am now taking them with a grain of salt after a mall visit yesterday. The mall was “open” but only about 15 percent open. Macy’s, J.C. Penney and Target were dark. Old Navy was open and booming — 22 people in the queue at the register. Forever 21 had six people in the queue outside the store. I was the only shopper in Banana Republic for 10 minutes. But what is “comp” about these numbers retailers are reporting? Depending on the competitive scenario in any given mall, the numbers have to be somewhat skewed. I am hoping to put my grain of salt aside some time in August or September.

Ralph Jacobson
BrainTrust

Although more rural locales have been open in several states for weeks, the densely-populated areas have yet to fully open. So even though online shopping is through the roof, I believe physical retail will enjoy a strong resurgence upon fully reopening.

Dave Bruno
BrainTrust

Early results from our client base indicate there is definitely some pent up demand, as most are outperforming expectations, and several are showing comps that outperform last year. Our clients are reporting lower traffic but larger basket sizes and much higher conversion rates. Whether the surge in pending lasts is difficult to predict. Like others, I fear a surge in COVID-19 cases is looming. Scenes from very busy beaches and crowded Las Vegas casinos combined with hundreds of thousands of protesters crowded into city streets do not bode well for virus containment. I doubt, however, there is political will for another round of widespread shutdowns. Instead, I suspect a series of localized containment measures may be in our near future. And if my hunch is correct, that may help retail weather the next looming storm.

Richard J. George, Ph.D.
BrainTrust

Besides the noted safety pandemic related issue, the issue of disposable income currently available to consumers is problematic. It’s effect will be felt less by everyday personal and household consumables. However, the opening of furniture, electronics, appliance stores, etc. will see slower returns to normality. The exception being items that failed and require immediate attention. New household capital expenses will be undertaken when jobs and consumer confidence rebound.

Oliver Guy
BrainTrust

This is a tough one. There may be some pent up demand but I am not sure it is enough. Rather than moderating reopening, retailers need to double-down their efforts to transform their businesses. COVID-19 is being seen as an accelerant for change and the most progressive retailers will recognize that they must invest in new approaches to market. They must invest in omnichannel while reinventing stores – a tough but necessary task. (I wrote about this last week.) We are seeing some examples of new channel investment – for example Ferragamo in Italy has accelerated investment in Augmented Reality as a way to enhance omnichannel sales.

Ricardo Belmar
BrainTrust
We may need to temper our enthusiasm for some of these sales reports from retailers for the short-term. Yes, there is plenty of evidence of pent up demand in some product categories and store segments. Off-price apparel seems to be recovering, but those stores are also less likely to have had e-commerce sites taking sales when stores were closed so consumers have more reasons to visit them now. Department stores may, for once, be in a better position than their specialty store friends inside malls. Anecdotal evidence so far suggests that consumers want easy access in and out of one store at a time to satisfy their needs for health and safety. Walking the mall, so far, doesn’t seem to show significant traffic yet, and in fact, many mall stores remain closed despite being allowed to open. I’m taking any numbers about foot traffic with a grain of salt given so many local government restrictions on social distancing and capacity limits still in place that make it hard to compare with historical data. Overall my… Read more »
Georganne Bender
BrainTrust

The stores that I have visited recently were busy and people were buying. The pent up demand for shopping is real, but so is the fear that the virus could rebound.

Retailers need to build trust with shoppers by continuing to require masks, sanitizing, hand washing, social distancing, etc. The rules on the store signs have to be maintained. If a retailer follows the state/community guidelines for a couple of weeks, and then lets them slide, shoppers will be leery of that store. Regardless of people not social distancing in public, retailers must remain vigilant.

Mark Heckman
BrainTrust

Never bet against the American consumer. While the current pandemic is likely to remain with us in some form or fashion through the fall, most consumers are anxious to get back to work and also get shopping. Those of us in the big cities will likely see a different pace of the recovery than those states and areas that have been less impacted by the virus. I am not as resigned as others appear to be to the idea that we are destined for another “major” spike in COVID-19 cases, at least one that requires sending healthy people back home to huddle with the sick. We are doing more and more tests will logically lead to cases, but the real litmus test is the severity of the cases, i.e. hospitalizations and mortality rates. From the numbers I am reviewing, those metrics are still trending favorably. Accordingly, I would plan for success, but smartly prepare for stores in big cities to walk, not run back to some level of normality.

Paula Rosenblum
BrainTrust

I confess to being surprised at the level of pent-up demand. But I also think it’s a short-term rush. In other words, second wave or no, I think people are going to start counting pennies again soon. Right now, it seems people are just excited to go out.

I would definitely keep the buys small for fashion, and keep honing the supply chain for Fast Moving Consumer Goods, so that it can be both agile and efficient. We got efficiency down. Agility, not so much.

Mel Kleiman
BrainTrust

Retail sales are far from being anywhere near back. It will be a long time before they are back to anywhere near what we could be called normal. Yes there is activity and people are buying and some are visiting brick and mortar stores, but they will be purchasing less than they used to for a long time. Consumers are forming new habits and have learned that they don’t need all the stuff they thought they needed.

Peter Charness
BrainTrust

Time will tell. I think retailers need to adopt conservative plans, and take the position that it may be better to meet your plan and accept that you may miss some sales due to out of stocks, rather than deal with liquidating excess inventory. Uncertain demand patterns = risk of inventory issues if you guess wrong. Chasing every last possible sale is a bad practice right now, IMHO.

Craig Sundstrom
Guest

The Instant Poll is a bit confusing: rebound “within a year” isn’t really about “pent up” demand. It should be understood that there was a substantial loss of economic activity during the quarter and this will ripple through all segments of the economy. People who missed out on a dozen movies or fine-dining experiences aren’t going to rush out and see a dozen movies or have a dozen dinners this month, so that activity is likely lost — forever. Retail is a little different, since there were certainly purchases that were put off that will now be made, but exactly how many, and whether/not consumers will alter their behavior — perhaps becoming more frugal in anticipation of future problems — is unknown. And finally — and unfortunately — the forecasts have taken on even more of a political tone than usual, which hardly builds confidence in them.

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