Show Transcript
The COVID-19 pandemic is having a significant impact on consumer behaviour. Anthony Okolie speaks with Anita Bruinsma, Consumer Discretionary Analyst, TD Asset Management, about how COVID-19 is affecting retailers as consumers are shopping more online.
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[MUSIC PLAYING]
- Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Thursday, April 30. I'm Anthony Okolie. In a few minutes we'll be speaking with Anita Bruinsma. She's a consumer discretionary analyst at TD Asset Management-- about the impact COVID-19 has had on consumer behavior and the retail industry. But first, a quick wrap of today's headlines.
The number of Americans filing for unemployment insurance grew by 3.8 million last week. It was the lowest reading since March 21, but brings the total number of unemployed to more than 30 million. The European Central Bank kept interest rates unchanged at zero as new reports show the economy suffered its deepest contraction on record in the first quarter.
And we have a snapshot of what Canada's economy looked like before the coronavirus pandemic. Canadian GDP was unchanged in February, as rotating teacher strikes and a rail blockade hurt economic activity. Attention now turns to upcoming GDP numbers for March, which will show just how much damage the coronavirus has had on the Canadian economy.
Meanwhile, the dramatic slide in oil prices amid the coronavirus crisis continues to hammer the energy industry. Europe's largest oil company, Royal Dutch Shell, is slashing its dividends for the first time since World War II.
Finally, the big technology companies continue to shine doing the post COVID-19 earnings season. Microsoft, Facebook, and Tesla all beat profit expectations, despite facing pandemic disruptions. Amazon and Apple are due to report after the market closes.
And that's a wrap of today's headlines. Up next is my conversation with Anita Bruinsma.
Anita, the retail landscape has been decimated by the COVID-19 pandemic. What's the latest data telling you about our buying habits, and more importantly, which industries are being hurt the most?
- Yeah. So retail sales have obviously taken a significant hit. The last number we had was for the month of March. But what we've been looking at here at TD Asset Management is actually additional data to give us more granularity on some of the sales trends that we've been seeing and more importantly what's been happening through the month of April.
So the data we're looking at is credit card data from Bank of America. And what it's shown us is that when the US declared a state of emergency in the middle of March, we saw an immediate reaction by consumers, whereby their discretionary spending fell significantly and spending on essential goods increased dramatically as people started to stock up.
So if we look at a couple examples, in travel, lodging, and entertainment, for example, credits card spending in those categories are actually down by more than 100%. And this is because people are getting refunds on some of the trips and entertainment venues that they had booked. And then we looked at other discretionary categories like apparel, where spending on clothing is down 60% to 80%, depending on the day. And spending at restaurants is down 50% to 70%. So these are massive declines.
But of course, this has been offset by other areas, which as I mentioned, was spending on essentials. And so it's fascinating to see that in the first couple of days after the stay-at-home orders were given, grocery sales were actually up over 100% for the first few days. Now, since then, that growth has moderated, but we're still seeing credit card spending on groceries up 20% to 30% on a year-over-year basis. And this, of course, would reflect the decline we've seen in restaurant sales.
- So besides food, where else are we spending our money?
- Well, there's two other categories that have done well. So the first one is electronics. That probably won't surprise you, as people were preparing to work from home, helping to prepare their kids to learn from home, do their school work from home. And Best Buy said in that first week after stay-at-home orders were issued, their sales jumped 25%. And we've seen a continuation of strong sales of electronics online.
The second category that has done well is home improvement. And there are several reasons why home improvement has done well. One is that you can actually buy essentials at Home Depot and Lowe's, for example-- cleaning products, gloves, those kinds of things. So that's helped.
But interestingly, we've seen an increase in seasonal sales. So as people are stuck at home and spring is coming, especially in certain parts of the US, they have to stay home, but they can get outside. So they're buying lawn furniture, patios, patio sets, gardening equipment, sod-- anything that's going to allow them to get outside while they're still at home.
And then the third category that's done well is DIY. So people are at home more. They are unfortunately unemployed, but that gives them time to get to that to-do list of projects around the house. And so that kind of spending has actually held up very, very well.
- And what about e-commerce? Because they seem to be the most well-equipped to thrive in this new environment. Is that still the case?
- Absolutely. And you won't be surprised to hear that online sales are really up dramatically on a year-over-year basis. Now, a lot of these sales have been of those essential goods. So we've heard from Walmart, Amazon, Target, and the grocery stores about just massive increases in demand on a year-over-year basis, which has caused its own challenges for these companies but also opportunities.
Now, in terms of discretionary spending, a lot of companies are saying that their online sales are down-- with some exceptions. We've heard from Nike and Adidas, who have both said that online sales have increased quite a lot. But what we really need to keep in mind here is that even though online sales are growing, in no way does online sales make up for the loss decline of in-store sales.
Before COVID, 85% of what people were buying in the US was still being bought in a physical store. So even if e-commerce is up 50%, 60%, 70%, whatever percent rate of growth that's going to be, it absolutely will not make up for the decline in in-store sales.
- So even though e-commerce is important, it's not going to solve all the problems for retailers.
- No, unfortunately it won't. Now, there have been a couple of interesting trends, I guess, that I've seen come out so far. So one of the interesting trends is those companies that have been investing aggressively in their e-commerce capabilities, these companies are really reaping the rewards of this now, where they're able to better fulfill customer orders, now albeit more slowly than usual.
But customers are still getting their orders. And I think that coming out of this, these companies are going to have an additional benefit, whereby people are going to say, you were here for me during COVID-19, you were able to deliver my essentials. And so that will create customer loyalty, I think, for these companies coming out of this crisis.
Now, the other interesting thing we've seen is just how expensive, actually, e-commerce is, particularly for those traditional brick-and-mortar companies. So we might see that sales are up dramatically, but the profits are not going to follow in lockstep. And this is because e-commerce is a more expensive channel, and some companies have had to increase capabilities during this time just to meet demand.
- Anita, given all of that, what's your outlook on the retail industry going forward?
- Well, I think, Tony, that can be a whole segment in itself because there's a lot to say on that topic. But what I will say is there's been some green shoots in the last few weeks. So looking at that credit card data, on April the 15th we saw an immediate improvement in the decline in spending on credit card data. April 15 was the first day that stimulus checks were deposited into bank accounts of Americans. And we saw an increase in groceries, general merchandise, and particularly in electronics, where I'm guessing people needed to buy that laptop for their kids now that they know they're going to be learning from home for a longer period of time.
So there is a green shoot there. I'm not sure how much support that is going to provide in the longer term, because that stimulus money isn't as much as people were making when they were employed. But it certainly will help to provide a bit of a floor on the decline in retail sales.
Having said that, of course, the retail environment is very, very challenging. We're heading into recession. We have massive unemployment. And it remains to be seen what impact that's going to have on consumer balance sheets and how long it's going to take for people to recover and to go out and spend their money again. So I do think we're going to see a lot of change in the retail sector in the coming months.
- Anita, thank you very much for your insights.
- OK, thanks, Anthony.
[MUSIC PLAYING]
- Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Thursday, April 30. I'm Anthony Okolie. In a few minutes we'll be speaking with Anita Bruinsma. She's a consumer discretionary analyst at TD Asset Management-- about the impact COVID-19 has had on consumer behavior and the retail industry. But first, a quick wrap of today's headlines.
The number of Americans filing for unemployment insurance grew by 3.8 million last week. It was the lowest reading since March 21, but brings the total number of unemployed to more than 30 million. The European Central Bank kept interest rates unchanged at zero as new reports show the economy suffered its deepest contraction on record in the first quarter.
And we have a snapshot of what Canada's economy looked like before the coronavirus pandemic. Canadian GDP was unchanged in February, as rotating teacher strikes and a rail blockade hurt economic activity. Attention now turns to upcoming GDP numbers for March, which will show just how much damage the coronavirus has had on the Canadian economy.
Meanwhile, the dramatic slide in oil prices amid the coronavirus crisis continues to hammer the energy industry. Europe's largest oil company, Royal Dutch Shell, is slashing its dividends for the first time since World War II.
Finally, the big technology companies continue to shine doing the post COVID-19 earnings season. Microsoft, Facebook, and Tesla all beat profit expectations, despite facing pandemic disruptions. Amazon and Apple are due to report after the market closes.
And that's a wrap of today's headlines. Up next is my conversation with Anita Bruinsma.
Anita, the retail landscape has been decimated by the COVID-19 pandemic. What's the latest data telling you about our buying habits, and more importantly, which industries are being hurt the most?
- Yeah. So retail sales have obviously taken a significant hit. The last number we had was for the month of March. But what we've been looking at here at TD Asset Management is actually additional data to give us more granularity on some of the sales trends that we've been seeing and more importantly what's been happening through the month of April.
So the data we're looking at is credit card data from Bank of America. And what it's shown us is that when the US declared a state of emergency in the middle of March, we saw an immediate reaction by consumers, whereby their discretionary spending fell significantly and spending on essential goods increased dramatically as people started to stock up.
So if we look at a couple examples, in travel, lodging, and entertainment, for example, credits card spending in those categories are actually down by more than 100%. And this is because people are getting refunds on some of the trips and entertainment venues that they had booked. And then we looked at other discretionary categories like apparel, where spending on clothing is down 60% to 80%, depending on the day. And spending at restaurants is down 50% to 70%. So these are massive declines.
But of course, this has been offset by other areas, which as I mentioned, was spending on essentials. And so it's fascinating to see that in the first couple of days after the stay-at-home orders were given, grocery sales were actually up over 100% for the first few days. Now, since then, that growth has moderated, but we're still seeing credit card spending on groceries up 20% to 30% on a year-over-year basis. And this, of course, would reflect the decline we've seen in restaurant sales.
- So besides food, where else are we spending our money?
- Well, there's two other categories that have done well. So the first one is electronics. That probably won't surprise you, as people were preparing to work from home, helping to prepare their kids to learn from home, do their school work from home. And Best Buy said in that first week after stay-at-home orders were issued, their sales jumped 25%. And we've seen a continuation of strong sales of electronics online.
The second category that has done well is home improvement. And there are several reasons why home improvement has done well. One is that you can actually buy essentials at Home Depot and Lowe's, for example-- cleaning products, gloves, those kinds of things. So that's helped.
But interestingly, we've seen an increase in seasonal sales. So as people are stuck at home and spring is coming, especially in certain parts of the US, they have to stay home, but they can get outside. So they're buying lawn furniture, patios, patio sets, gardening equipment, sod-- anything that's going to allow them to get outside while they're still at home.
And then the third category that's done well is DIY. So people are at home more. They are unfortunately unemployed, but that gives them time to get to that to-do list of projects around the house. And so that kind of spending has actually held up very, very well.
- And what about e-commerce? Because they seem to be the most well-equipped to thrive in this new environment. Is that still the case?
- Absolutely. And you won't be surprised to hear that online sales are really up dramatically on a year-over-year basis. Now, a lot of these sales have been of those essential goods. So we've heard from Walmart, Amazon, Target, and the grocery stores about just massive increases in demand on a year-over-year basis, which has caused its own challenges for these companies but also opportunities.
Now, in terms of discretionary spending, a lot of companies are saying that their online sales are down-- with some exceptions. We've heard from Nike and Adidas, who have both said that online sales have increased quite a lot. But what we really need to keep in mind here is that even though online sales are growing, in no way does online sales make up for the loss decline of in-store sales.
Before COVID, 85% of what people were buying in the US was still being bought in a physical store. So even if e-commerce is up 50%, 60%, 70%, whatever percent rate of growth that's going to be, it absolutely will not make up for the decline in in-store sales.
- So even though e-commerce is important, it's not going to solve all the problems for retailers.
- No, unfortunately it won't. Now, there have been a couple of interesting trends, I guess, that I've seen come out so far. So one of the interesting trends is those companies that have been investing aggressively in their e-commerce capabilities, these companies are really reaping the rewards of this now, where they're able to better fulfill customer orders, now albeit more slowly than usual.
But customers are still getting their orders. And I think that coming out of this, these companies are going to have an additional benefit, whereby people are going to say, you were here for me during COVID-19, you were able to deliver my essentials. And so that will create customer loyalty, I think, for these companies coming out of this crisis.
Now, the other interesting thing we've seen is just how expensive, actually, e-commerce is, particularly for those traditional brick-and-mortar companies. So we might see that sales are up dramatically, but the profits are not going to follow in lockstep. And this is because e-commerce is a more expensive channel, and some companies have had to increase capabilities during this time just to meet demand.
- Anita, given all of that, what's your outlook on the retail industry going forward?
- Well, I think, Tony, that can be a whole segment in itself because there's a lot to say on that topic. But what I will say is there's been some green shoots in the last few weeks. So looking at that credit card data, on April the 15th we saw an immediate improvement in the decline in spending on credit card data. April 15 was the first day that stimulus checks were deposited into bank accounts of Americans. And we saw an increase in groceries, general merchandise, and particularly in electronics, where I'm guessing people needed to buy that laptop for their kids now that they know they're going to be learning from home for a longer period of time.
So there is a green shoot there. I'm not sure how much support that is going to provide in the longer term, because that stimulus money isn't as much as people were making when they were employed. But it certainly will help to provide a bit of a floor on the decline in retail sales.
Having said that, of course, the retail environment is very, very challenging. We're heading into recession. We have massive unemployment. And it remains to be seen what impact that's going to have on consumer balance sheets and how long it's going to take for people to recover and to go out and spend their money again. So I do think we're going to see a lot of change in the retail sector in the coming months.
- Anita, thank you very much for your insights.
- OK, thanks, Anthony.
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