The Retail Bounce-Back Is Coming
Lessons from 9/11: First Published on March 16, 2020
While it is difficult to predict the impact that the coronavirus will have on the economy, common sense suggests that one of the hardest hit areas will be the retail sector.
Why? The coronavirus poses a unique challenge to the retail sector with social distancing restrictions and the potential collapse of consumer confidence.
All over the world, people are in what we might call the shock and fear phases of reaction to a crisis. This is a time when toilet paper and water are sold out in grocery stores or when the stock market dramatically rises and falls all in the same day. It is when people worry about how their families may be affected and when the virus’s spread will end.
To understand how the coronavirus can impact retail, it is instructive to look at the experience of 9/11. There, the attacks on the symbols of America’s financial and military strength shook the world. The stock market fell 684 points on the first day of trading after 9/11, a 7.1% decline, setting a record for the biggest loss in exchange history for one trading day. An estimated $1.4 trillion in value was lost in those five days of trading.
If all anyone looked at was the first few months after the attacks, then the economic picture looked pretty grim — to say nothing of the horrific effect on human lives. But in the years since 9/11, the economy came back, though in a very different way. It was a new economy shaped by industries and technologies that were either emerging or even nonexistent prior to the attacks.
The same is likely to be true with coronavirus. We are already seeing the seeds of innovation as industries begin adapting to this new reality. Here, the most important responses to the coronavirus are coming from industries that specialize in telemedicine, testing, and data modeling for disease mapping. And as time goes on, we can expect to see these responses in adaptations in the retail, travel, and convention sectors.
To that end, while retail sales are likely taking a major hit, most stores will recover as they did after 9/11 (see data below). For instance, retail sales in 2020 will perform more strongly than in 2001. Retail sales increased to $2.12 trillion in 2002 from $2.06 trillion in 2001 and GDP also increased to 3.86% from 2.12% the year after 9/11. The fundamentals for the economy were not nearly as strong as they are today. We project that consumer confidence will rise as the economy bounces back as it did in the post-9/11 period.
Although this is a profoundly challenging time for retailers, the long-term prospect for growth will endure in the post-coronavirus world. Consumers in Motion projects a substantial bounce-back in the retail marketplace based on the data from the 9/11 experience. Retailers should use this time to prepare for the inevitable bounce-back.
