By Joe Higgins, Quest 4 Quality
It’s an odd time in American history to be making predictions about the economy, but that is what I am supposed to be doing as I shelter at home here in Washington. At least it’s fun to watch spring roll in as the flowers bloom, the trees magically get their leaves and the black tail deer return to eat the growing grass on my property.
Economists have always used history to determine the numbers for the upcoming quarter or the full year; it is the one handle we have in our crystal balls to see our financial future. But in this age of COVID-19 there is no history, and we still don’t know the full effects of a virus that has forced millions in America to shelter in their homes, wear masks and avoid human contact. Even doctor visits are done over the Internet; food is delivered to your front door from restaurants; and your children are attending school in front of a laptop. It is all quite distressing.
But there is news, and I want to explore some of our economic outcomes through April. We all watched as retail sales across the U.S. suffered their worst drop since we began measuring this indicator. In most states there were mandatory business closures to control the spread of the novel coronavirus. One of the hardest hit categories is home furnishings; it’s been a terrible blow to our industry. Our response to the virus forced consumers to stay home and thus consumer spending recorded its worst decline in more than 30 years. According to the U.S. Commerce Department, March retail sales were off 8.7 percent, marking the worst decline since 1992, the first year we tracked this stat. This was after falling 0.4 percent in February, a sign that we were beginning to see a slowdown.
In a Reuters survey of economists, retail sales were predicted to have fallen 8 percent in March, so the numbers came in close to forecast.
But let’s keep this in perspective: millions of our fellow Americans have lost their jobs and it is self-evident that we have entered a deep recession. There was no predicting this one, as this pandemic’s impact on the U.S. economy has no historical basis. I have no way to go back and pull up numbers to predict our future. Most states and cities put shelter-in-place orders into effect in an effort to slow down the virus. The restrictions affected more than 80 percent of the population and literally shut down the U.S. economic engine.
In a recent call with Sam Abdelnour, the longtime Whirlpool Vice President pointed out that “Seventy-four thousand appliances break down every day and have to be replaced and that will not change.” He said most of the decline over the last two months was in construction, remodeling and discretionary buys.
“My fear is that too many retailers pay too little attention to the 74,000 daily replacements because they are generally lower margin, lower price point and single unit sales,” Abdelnour continued. “Most independents have gotten very healthy selling suites, premium and super-premium packages and have left the replacement to the big-box stores.”
I think the best part of the appliance business is that people need refrigerators, washers and dryers, and all the other white goods you sell, as Sam clearly noted.
I guess some of the best news in our industry, in most states, is that appliance and electronic stores were deemed essential businesses, although your sales were negatively impacted. According to the National Retail Federation (NRF), sales at appliance and electronics specialty stores were down 15.8 percent in March, and while that is not great news at least we were open for business.
There is no way for me to sugarcoat this: our economy is shut down, there is no bottom in sight, and the climb back up will be a long and arduous one. Many people thought that online sales would compensate for the receipts that have been lost to traditional retailers but that has not been the case. Sure, grocery stores, pharmacies, e-tailers like Amazon, and discounters like Walmart, Costco and Target saw a huge surge in volume, spiked by sales of necessities like toilet paper, cleaning products and pasta and beans. But it didn’t offset total retail losses nationwide.
As I have stressed over the years in my presentations, consumer spending makes up 73 percent of U.S. economic activity. This is the key measure we look at to determine the health and wellbeing of the economy. When you take into account corporate spending in response to consumer demand, that number increases another 8 percentage points to 81 percent. Last year in the fourth quarter, consumer spending was up a robust 1.8 percent and gross domestic product (GDP) came in at 2.1 percent.
Now as I look ahead, some economists are predicting a potential decline in GDP of 38 percent in Q2. This would be three times greater than any decrease since the Great Depression. And we simply can’t panic buy enough toilet paper to offset the retrenchment spending in other product categories.
But, as Thomas Fuller said, “It is always darkest before the dawn.” Sometime this year there will hopefully be vaccines, treatment protocols and other measures that will calm our nerves. It will take a long time before most Americans will be comfortable getting on an airplane or sitting in a crowded convention hall, but one thing I know about us humans is that we have a short collective memory. We wake up every day to face the world and bring economic security to our families; this is who we are.
Independent dealers are very resilient — you all faced the worst recession in U.S. history in 2008 and 2009, and over the past 10 years we all have participated in the U.S. recovery. I can’t predict what the numbers will be, and I certainly can’t predict the long-term consequences yet. But I at least know this: even if unemployment comes in at 25 percent, it still means that 75 percent of us will have jobs. Even if your customers cut their spending by 15.8 percent each, they will still have to replace products that fail. And even though many remodel projects will be put off for a few months, most customers will at some point be in your stores planning a new kitchen.
In his quarterly report to shareholders, a very well-known CEO quoted Dr. Seuss: “When something bad happens, you have three choices: you can either let it define you, let it destroy you or you can let it strengthen you.” I know many of the BrandSource members personally; I have been in your stores, I have been with you in tough times, and I have watched you weather many storms. I know the extraordinary character that makes up this group.
I am confident which of the three choices each of you will make. It is this process that will bring America back — the collective strength of 328 million American consumers, and all of our dealers moving to greet them with optimism when they walk though those front doors and set our businesses back on track.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant and public speaker. Visit his website, Quest 4 Quality With Joe, at www.q4qwithjoe.com.