COVID-19 has had profound influences on the U.S. economy, institutions, and lives and livelihoods of consumers. William Blair's consumer equity research team anticipates the recovery in consumer spending to continue, albeit probably at a less steep pace in coming months and with likely volatility as coronavirus cases begin to rise again. As a result, the team is focused on three main themes that span the entire consumer spectrum: competitive rationalization, fundamental business insights and/or changes that will enable some companies to emerge even stronger post-pandemic, and a consumer shift to the great outdoors, alongside the return of the great American road trip, as borders have closed.

The pandemic upended consumer spending, with a record retail sales decline in April followed by improving sales in May (although still negative) as states began to "reopen" and consumers started to come out of quarantine. By sector, grocery benefited from pantry loading and a shift away from restaurants in the early days of the pandemic, with a long tail as well-above-average double-digit sales growth continued through May. E-commerce also accelerated throughout the March to May time frame, while building equipment and garden supplies took off in May as consumers invested more in their houses, with vacations canceled and offices moved to the home front. However, virtually all other retail categories remain markedly lower than pre-pandemic trends, including a dramatic downshift in sales in clothing and restaurants as brick-and-mortar shutdowns and shifting consumer preferences penalized results. 

Not surprisingly, the pandemic's impact on consumer spending is translating to a dramatic dislocation in retail earnings relative to the broader market, while consumer packaged goods (CPG) has outperformed. According to consumer analyst Sharon Zackfia, "So far, expectations are for the vast majority of our covered companies to reach a bottom in sales trends in the second calendar quarter, with certain exceptions for companies that may have disproportionately benefited in the early days of the pandemic (primarily concentrated in e-commerce and CPG)."

William Blair's Weekly Consumer Pulse (n=500) survey results support Zackfia's belief that trends likely bottomed in the second quarter, with all activities (with the exception of restaurant delivery and international travel) now ahead of early April levels. Indeed, overall reported activity in the survey bottomed the week of April 13, with trends maintaining a fairly steady subsequent upward climb before pausing the past few weeks as coronavirus cases began to rise again. Other key metrics providing evidence of an ongoing recovery include rising retail store foot traffic and consumer mobility, alongside an increase in the numbers of employees working and local businesses open.

The apparel and accessories industry was hard hit by the COVID-19 pandemic. Most retailers were deemed unessential and forced to close storefronts by late-March, leading to a nearly 90% decline in brick-and-mortar sales nationwide in April. Through the lockdown period, retailers shifted focus online to work through seasonal inventory. While this helped alleviate inventory overhang for summer, it further compressed both sales and product margin, with some retailers taking significant write-downs in the first quarter to account for expected continued weak demand.

Auto parts retailers are experiencing weaker sales on balance (relative to pre-COVID-19 levels) thus far during the pandemic-driven downturn. However, their businesses are still holding up better than many other areas of retail, owing in part to the fact that they are considered an essential business and therefore have had essentially fully open store bases serving both DIY (do it yourself, or retail) and DIFM (do it for me, or professional) customers—the latter via both in-store professional counters and parts delivery to nearby service garages.

As COVID-19 spread and state governments implemented business closure, stay-at-home, and social distancing guidelines, U.S. consumers were forced to adjust their shopping behaviors. At the onset of the pandemic, demand at retail for consumer packaged goods surged as consumers purchased basic necessities for at-home consumption.

Separate from the digitally native apparel and accessories companies, some e-commerce names have enjoyed a relative boon in 2020 to date, benefiting from broad consumer fear of the virus that has forced demand online, even for CPG, grocery, and basic items otherwise available from essential retailers.

Home furnishings retailers have experienced a wide range of performance thus far during the COVID-19 pandemic and related recession. In general, retailers that depend more on in-store business and/or operate smaller stores have been more negatively impacted, especially during the stretch from mid-March through early May (when the store bases of many nonessential retailers were largely or fully closed).

In the outdoors and recreation industry, attendance across the live entertainment industry and sales of outdoor products (largely due to store closures) were significantly impacted during the second half of March and most, if not all, of the second quarter. With stores reopening and early foundation work being laid to reopen (or begin the process of opening) a number of entertainment venues, such as movie theaters, theme and water parks, and a host of other venues, it appears that demand and attendance are poised to recover moving forward. For recreation and leisure companies, this improvement will likely not be linear, as we could see some markets forced back into closure. Retailers catering to certain outdoor activities—particularly those activities that lend themselves to being alone or in small groups in more isolated areas—are experiencing relatively strong trends thus far during the pandemic. Such activities include hunting/shooting sports, camping, fishing, and hiking.

Restaurants have been one of the most severely impacted sectors across the consumer landscape, reverting from one of the fastest-growing industries pre-pandemic to one of the weakest during the pandemic. Since the pandemic began, restaurant concepts that have fared best have shared several key characteristics: limited-service formats with an emphasis on takeaway and/or delivery, a focus on dinner and/or family meals, and real estate footprints that skew to the suburbs. 

For a copy of the "State of the Consumer Recovery"report or the "Weekly Consumer Pulse" mentioned in this article, please contact your William Blair salesperson. To learn more about how the coronavirus is affecting sectors and companies in our coverage, please contact your William Blair salesperson.