Retailers Will Feel Shutdown Impact For Many Months
The partial government shutdown has disrupted numerous sectors from travel to life sciences. Even as a short-term solution unfolds, the impact on the retail industry may be felt throughout the first half of the year.
There are four key areas retailers are closely watching:
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Consumer Confidence – While consumer confidence was high for most of 2018, the shutdown and related political and economic volatility will no doubt impact sentiment. Indeed, January’s initial University of Michigan Consumer Sentiment reading was the lowest level since the 2016 election. With more uncertainty in the air, consumers may be more conservative with purchases.
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Income Concerns – According to most estimates, as many as 800,000 workers went without pay throughout the shutdown. For every day the shutdown dragged on, that change of income created a negative impact on spending and overall retail sales.
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Tax Refund Concerns- Moreover, while the IRS has pledged to bring in more workers to process tax returns, it’s possible that some consumer refunds will be delayed. Many retailers rely on strong sales at the end of January as they are closing their books for the year and registers are unlikely to meet expectations. We expect the shutdown will be a key topic of discussion in Q4 and Q1 earnings reports later this year.
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IPO Impact – As our colleague Tim Kviz discussed with Women’s Wear Daily, the SEC’s delay in reviewing and approving registration statements created a backlog across industries. For consumer brands who were targeting an IPO at the beginning of the year, those plans may have been put on hold or abandoned for brands that needed capital fast.
Looking ahead, these factors hit consumers and retailers alike at a tough time. While sales were up overall for the holiday season, many retailers underperformed and were already in a position of revising earnings and plans for the year. Others were teetering on bankruptcy or planning for restructuring efforts, and this could be an inauspicious omen. It’s more critical than ever that retailers take a hard look at strategic plans for the year ahead and apply caution in decisions from inventory to investments.
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