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Consumers Shift Spending Away from Clothing, Furniture, and Travel

Coronavirus   |   Economics

By Sara B. Potter, CFA  |  May 21, 2020

Beginning in March, states and municipalities across the United States reacted swiftly to stop the spread of the COVID-19 novel coronavirus. With widespread mandates for businesses to remain closed and residents to stay at home, the shutdown orders have had a devastating impact on the nation’s economy, particularly for the retail sector. The speed at which events have been unfolding is unprecedented. In April, economists were struggling to adjust forecasts based on limited and largely anecdotal information. As we approach the U.S. Memorial Day holiday, the extent of the economic damage is becoming much clearer.

Retail Sales See Record Drop, Led by Clothing and Furniture Stores

Following a surprise 8.3% month-over-month drop in retail sales in March, sales at retailers plummeted by 16.4% in April. This was the largest monthly decline in the 28-year history of the U.S. Census Bureau series. As expected, the largest drops were for discretionary items. Sales at clothing and accessory stores fell by 78.8% in April; year-over-year sales are down a staggering 89.3%. To put this in perspective, in April 2019 consumers spent $22.2 billion on clothing; in April 2020 they spent just $2.4 billion, just one-tenth of their previous spending.

April 2020 retail sales

The other retail sales category seeing dramatically lower sales was stores specializing in furniture, home furnishings, electronics, and appliances. In April, these stores saw sales plunge by 59.6% on the heels of a 16.6% decline in March. Compared to a year ago, April sales were down by 65.8%.

Not surprisingly, job losses for these two retail segments have been astronomical. According to the U.S. Bureau of Labor Statistics, employment at clothing and accessory stores dropped by 58.3% in April compared to March. This sector has shed a jaw-dropping 789,000 jobs compared to 12 months ago, a 59.7% decline. Furniture and home furnishings stores’ employment was down 45.2% in April; 221,000 jobs have been lost since April 2019, a decline of 46.6%.

Department Stores’  Troubles Intensify

Long-suffering department stores are also feeling the pain as many malls across the country were shuttered in March and April. According to the U.S. Census Bureau, retail sales at department stores fell 22.2% in March and another 28.9% in April. Year-over-year sales were off 47% in April. The negative news from the major national chains has been unrelenting. Earlier this month, luxury chain Neiman Marcus filed for Chapter 11 bankruptcy, followed by JCPenney just recently. Lord & Taylor has announced plans to liquidate its stores once they are able to reopen. Following Nordstrom’s announcement of the permanent closure of 16 stores, Macy’s and Kohl’s begin to reopen stores across the country following lockdowns but under increased scrutiny by industry analysts.

Travel Plans Have Been Put on Hold

According to The Conference Board, U.S. consumers have largely canceled their future travel plans. The April consumer confidence survey shows that just 31.9% of respondents intend to take a vacation within the next six months. This down from 54.9% in February and is the lowest reading ever in the 42-year history of this survey question. This signals rough times ahead for the travel industry. We only have monthly personal consumption data through March, but the numbers are pretty telling. In March, consumption on accommodations was down 43.3% compared to February while air transportation had dipped by 53.5%. We can expect the numbers to look even worse for April.

Vacation Plans

Airlines and hotels are bearing the brunt of the economic impact due to the drop in both domestic and international tourism. We already know that these sectors have begun massive layoffs. U.S. employment in the accommodations industry fell 41% in April. Hotel chain stocks have been hit hard. Hyatt Hotels’ stock is down 40% year-to-date, Marriott is down 39%, Hilton is off 30%, and Choice Hotels is down 23%. Choice Hotels, whose business is largely domestic, is faring better in this environment than its much larger, globally-focused competitors. In the company’s first-quarter earnings release, Choice Hotels indicated that 97% of its domestic hotels remained open as of May 6. According to the company, “Nearly 90% of the company's domestic hotels are in suburban, small towns and interstate locations, which have consistently reported higher occupancy levels industry-wide, driven by relatively stronger consumer demand for these destinations compared to urban or resort locations.”

Hotel Stocks NEW

According to the International Air Transport Association, global air travel was down 52.9% in March compared to a year earlier, hitting its lowest level since the Global Financial Crisis. In the U.S., jobs in air transportation fell by 27.4% in April. The four major U.S. airlines—American, Delta, United, and Southwest—are prohibited from laying off or furloughing workers until after September 30 as a condition of receiving billions in payroll assistance as part of the CARES Act. But these carriers have been asking employees to take voluntary unpaid or lower-paying leaves, reduced hours, and early retirement. These airlines are currently bleeding money daily; we’re likely to see further payroll reductions from these large carriers come October 1. We have also seen some small regional airlines go under, including Trans States Airlines and Compass Airlines.

Global Air Travel

The Consumer Outlook Looks Grim

According to The Conference Board, consumer confidence has weakened significantly with the overall index falling from 118.8 in March to 86.9 in April, the lowest reading since June 2014. Looking at the survey breakdown by age groups, we see that older Americans (aged 55 and over) are much less optimistic than survey respondents under 55. This poses a problem as we look to economic recovery. As highlighted in research from The Conference Board, households in which the head of household is 65 years old or older represent 22% of total household expenditures in the U.S. In addition, this age group dominates spending at full-service restaurants and travel and lodging. The research points out that in addition to the overall effect on the travel industry, reduced spending from this age cohort could have outsized impacts in regions with higher populations of older people.

Consumer Confidence by Age

Conclusion

As parts of the U.S. and the rest of the world start to reopen their economies, there is room for cautious optimism. However, as consumers have shifted their spending away from discretionary purchases such as clothing, furniture, and travel, the overall economic impact is staggering. We are likely to see permanent shifts in spending patterns and this will have a dramatic impact on labor markets. It’s not clear that things will return to “normal” anytime soon.

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Sara Potter, CFA

Senior Content Specialist, Market Analysis

Ms. Sara Potter is Senior Content Specialist and Market Analyst at FactSet. In this role, she is in charge of thought leadership economic analysis and reports and a regular contributor to FactSet Insight where she provides commentary on a wide range of current market topics. Since joining in 1999, she has managed the economic database development team where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Ms. Potter is an active member of the FactSet Charity Committee which focuses on evaluating FactSet’s charitable event sponsorship and employee volunteerism programs. She earned an M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.