fbpx
Advertisement

Retail Forecast 2021: A Return to Normalcy

Retail Forecast 2021: A Return to Normalcy

Experts predict that business owners will experience increasing revenues and a more favorable operating environment in 2021 as the U.S. economy gradually rebounds from the COVID-19 pandemic.

Relief is in sight, and retailers can look forward to the easing of pain over the next 12 months! So say some economists, who— without factoring in the U.S. presidential election—have predicted a gradual but noticeable economic recovery in 2021, fueled by a strong housing market, a surge in corporate profits and the successful rollout of a COVID vaccine.

Early in the fall of 2020, Sophia Koropeckyj, managing director of Industry Economics at Moody’s Analytics, a research firm based in West Chester, Pa., pronounced, “The COVID-19 recession is over, and the economy is currently in an early-cycle expansion.”

Many corporate leaders and economists seem to concur with Koropeckyj, suggesting that retailers should see notable gains in sales over the next 12 months. “Our current 2021 forecast is for 6.2 percent growth in ‘core retail sales,’” says Scott Hoyt, senior director of Consumer Economics for Moody’s. (Core retail sales exclude the auto and gasoline segments.) That would be a substantial improvement over 2020, when the estimated 2.1 percent increase reflects a deceleration from the 3.9 percent growth of 2019.

The healthier the economy, the greater the potential for wage increases that can fuel retail sales. And Moody’s expects the nation’s Gross Domestic Product (GDP) (the total value of goods produced and services provided in a year) to increase 4.0 percent in 2021. That’s a welcome rebound from 2020’s decline, expected to come in at a similar 4.0 percent when figures are finally tallied. (GDP is the most commonly accepted measure of economic growth.)

Koropeckyj contends that a Joe Biden presidency could support the already rebounding U.S. economy in three areas. “Biden has proposed significantly more fiscal stimulus, which [should it happen] could pack a punch in the coming year,” she says. “Second, Biden has said he will not continue Trump’s tariffs on China, which have resulted in higher retail prices on some consumer goods. Finally, Biden has promised to liberalize international immigration, which [should it happen] would likely boost the supply of labor in the U.S. and, in turn, the economy’s potential.”

Economic growth, says Moody’s, should help boost corporate profits by an expected 17.1 percent in 2021—a dramatic turnaround from the 13.8 percent decline in 2020—and fuel optimism about making aggressive capital expenditures, which are critical to an economic rebound.

Corporate America seems to share Moody’s optimistic assessment of the coming year. “Even though there’s still a lot of uncertainty, many companies have a positive outlook,” says Tom Palisin, executive director of The Manufacturers’ Association, a York, Pa.-based regional employers’ group with more than 370 member companies. “Our members feel that by mid-2021, things will have turned around significantly.”

Most retailers should experience a gradual return to normal. During the first half of 2021, households are expected to continue to self-quarantine, and a wave of business bankruptcies will boost the number of permanent job losses, but by summer 2021, Koropeckyj says, “The economy will regain its stride.”

MIXED RESULTS

In 2020, the public rechanneled its purchasing away from services and toward merchandise. “While consumer spending has decreased, retailers have not been hit nearly as hard as service businesses,” says Hoyt. Moody’s forecasts a decline of 5.2 percent in services spending when 2020 numbers are in—a stark reversal from the
4.3 percent gain in 2019. “Many people are hesitant to travel, go to entertainment facilities and do things with other people, and, instead, they are buying goods, to a certain degree,” he continues.

Despite revenue increases in the overall retail sector, many retailers shuttered their storefronts in 2020. One reason for the disparity is that shoppers became highly selective during the pandemic, abandoning many merchandise categories in favor of a select few that are either essential to living or enhance the enjoyment of pandemic- enforced leisure time. (This could create opportunities for savvy florists!) A second reason is that even more goods are now being purchased online.

“The online-shopping trend accelerated dramatically as a result of the pandemic,” Hoyt notes, “particularly at first, when so many stores were closed and consumers had no choice but to buy online, outside of essential goods. And there are folks who still don’t want to venture out to stores, so they’re continuing to purchase online.”

CONSUMER CONFIDENCE

Retail spending by consumers accounts for some 70 percent of the U.S.’s economic activity. That spending, though, is driven by public psychology, and the most recent reports from Moody’s show that in late 2020, consumer confidence was as low as it was in March and April. Uncertainty about the pandemic and the availability of an effective vaccine is one reason, but a more immediate driver is the drop in take-home pay.

“Wage and salary income, including the value of benefits, is projected to decline 1.3 percent when 2020 numbers are finalized,” says Hoyt, which is a reversal of the 4.4 percent increase of 2019. (Wage and salary income excludes government payments such as the 2020 pandemic relief checks). Moody’s anticipates that wages and salaries in 2021 will increase 2.5 percent.

Pandemic-related furloughs and business closings account for a majority of the decreases in wages. Moody’s expects the unemployment figure to come in around 8.5 percent when 2020 numbers are tallied—a sharp increase from the robust 3.5 percent last February.

Expectations for hiring are, once again, for gradual improvement. The unemployment rate is expected to decline only slightly, to 7.8 percent, by the end of 2021. “The labor market will not recover all COVID-19-related job losses until the second half of 2023,” Koropeckyj theorizes.

HOUSING SURGES

Retail sales tend to increase when more people buy new and existing homes, and it is anticipated that housing activity will increase in 2021. “Housing demand has bounced back thanks to low mortgage rates and the release of pent-up demand,” says Koropeckyj, who cites healthy builder confidence as the nation enters the new year.

Moody’s expects housing starts to surge by 16.8 percent in 2021, after slowing to a 2.9 percent rate in 2020. The comparable 2019 figure was a positive 3.8 percent.

Despite its recent success, the housing industry does face headwinds. “We expect prices of existing homes to fall by 0.3 percent in 2021 as foreclosures mount,” says Koropeckyj. “Banks have tightened standards across all sorts of mortgage products.” On the flip side, for new housing, Koropeckyj reports that construction costs are rising quickly, and builders are grumbling about the inability to find buildable lots and skilled labor.

CAPITAL INVESTMENT

Retailers also benefit when corporations invest in capital projects, which sparks faster economic growth, but here, the picture is a little less optimistic. Faced with uncertainty, decision-makers have been holding onto cash and delaying investments. Total real fixed investment in 2020 fell by 27.0 percent annualized, according to Moody’s.

More robust investment is not expected to arrive any time soon. “Low-capacity utilization and still-high uncertainty will make expansion decisions difficult, though the declining cost of corporate borrowing will provide some offset,” says Koropeckyj. “Major segments of investment will be weak, with transportation equipment and structures especially hard hit. Structures investment will fall more than 20 percent in the months ahead, led by the collapse in retail and reduced demand for office space.”

Bank loan availability poses another barrier to capital investment. “While interest rates are low, many companies have taken financial hits that affect their ability to qualify for capital,” says Palisin. “There is some tightening of access by lending institutions.”

Technology is one bright spot in the capital investment picture, according to Moody’s, and Palisin concurs with the observation, reporting an increase in spending by his members to boost efficiencies. “The pandemic will probably accelerate the trend toward more automation and robotics, as manufacturers strive to increase their resiliency,” he says.

TIGHT LABOR

If employers start to hire more people in response to improving revenues, an economic rebound will be accelerated. The reality, though, is that many job applicants are holding back.

“Companies are experiencing recruiting problems,” says Palisin. “One reason is that a portion of the workforce that is still on furlough is, generally, not seeking other jobs, preferring, instead, to wait to return to the jobs they were furloughed from. Second, there are childcare issues as students go back to school online, and that is making it difficult for some parents to get back into the labor pool. Finally, there is some level of health concern among employees going back into the workplace, especially among older workers and other higher-risk people.”

Will hiring difficulties continue? “Perhaps as we get into the new year, people will start to feel more comfortable returning to the workforce and the childcare issues may be resolved, particularly when an effective vaccine becomes widely available,” says Palisin. “But right now [November 2020], people are hesitant, sitting on the sidelines to see what is going to happen.”

NEW DEAL

In the opening months of 2021, some key indicators may help retailers determine how the year will go. Consumer confidence levels will offer insight into how freely shoppers will spend. “Also keep a close eye on the number of business bankruptcies and the core unemployment rate, which excludes temporary layoffs,” Koropeckyj advises.

Businesses of all kinds will also be looking for increased certainty on matters such as market stabilization, the ability to hire and access to qualified labor pools. But perhaps the most reliable economic indicator will be the rate of progress toward the development and distribution of an effective vaccine. “The return to some semblance of economic normalcy hinges on that,” says Koropeckyj.

About The Author

Subscribe
MELROSE

Categories

creative candles
door dash

florists' review

For all the latest industry news, contest announcements, new product introductions and much more join our weekly newsletter club.

Your information is safe with us! We do not sell or trade our customer’s data with third parties.