Along with the restaurant and travel sectors in the US, the retail industry has been hit especially hard. While grocery stores and online retailers have been deemed essential and continue to operate, department store chains and other “nonessential” retailers, big and small, have been forced to close up shop.
Those closures are dealing potentially catastrophic blows to cash reserves and accelerating trends in consumer behavior that could spell doom for large swaths of brick-and-mortar retail and the 16 million people the industry employs. Nearly 1 million retail workers were furloughed in a single week recently, according to the Washington Post, and more than 250,000 stores have been shuttered, according to GlobalData Retail. Some analysts predict 15,000 retail stores will close permanently this year, which would mark a 60 percent increase from last year’s record closures.
But not every retailer is suffering. For Walmart and Amazon, which already dominated a significant percentage of brick-and-mortar retail and online commerce in the US, respectively, the pandemic has provided an exponential boost to their already substantial businesses and power. Google searches for Amazon are at near-holiday-season levels; in-store sales at Walmart skyrocketed in March; and together both companies are hiring 250,000 new workers. Meanwhile, more and more people are switching to online shopping and grocery delivery and pickup — and they may not revert to their old habits when the pandemic ends.
“My first thought is the number of people who work in retail and have had careers in retail that may not have the same job or even companies to go back to,” said Matt Kaness, a former Walmart and Urban Outfitters executive who is now executive chairman and interim CEO of Lucky Brand, the denim retailer.
As foot traffic to non-grocery retail stores declined more than 97 percent during the last two weeks in March, Walmart store sales rose 20 percent for much of March over the same period last year, according to the Wall Street Journal. The company has said it is looking to hire 150,000 new workers by the end of May.
And then there’s Amazon, which already accounted for nearly 40 percent of all US online retail sales — that’s around eight times more than its next competitor, Walmart. Before the pandemic, the US e-commerce industry only represented between 10 percent and 15 percent of overall retail. Now, that percentage seems likely to grow, setting up Amazon to have a bigger advantage over most other retailers, including Walmart.
With millions of Americans ordered to remain home, Amazon is now, more than ever, a lifeline for essentials for millions of people rather than just a convenient option for online shopping. Consumer spending on Amazon is up 35 percent from the same period last year, according to estimates from Facteus, a firm that analyzes more than 30 million daily payment card transactions to offer consumer spending insights to retailers and financial institutions. The labor numbers also reflect the company’s growth; Amazon has hired 80,000 new workers in the past few weeks alone.
Amazon CEO Jeff Bezos’s company already faced intense scrutiny from lawmakers, regulators, and worker rights groups before the pandemic because of business practices some deem anticompetitive and what some workers say is a punishing pace of work at its warehouses. Still, it would have been hard to imagine that Amazon would expand its power exponentially over just two months, but the exponential spread of this pandemic has done it. The question is: At what cost?
“When this is over, I think this could be the biggest boon ever to Amazon,” David Kahan, the US CEO of shoe brand Birkenstock, told Recode. “Who’s going to survive this? Well, you know Amazon has money in the bank.”
“This is not something that capitalism drove”
The novel coronavirus is not discriminating in who it infects, but local governments’ response has, out of necessity, discriminated against different retailers and their employees.
In North America, the apparel, fashion, and beauty industry generates approximately $600 billion in annual revenue and employs more than 4 million people, according to McKinsey . Macy’s, Gap, and J.C. Penney have furloughed around 300,000 workers, sending them home without pay but keeping them on their health care plans. Executives at these companies say they don’t know when their stores might reopen, and analysts believe it’s possible some current locations never will.
“They had the rug pulled out from under them and are unfairly disadvantaged, while their competitors, like Amazon, Walmart, and arguably Target are allowed to stay open and widen their lead,” said Sucharita Mulpuru, a retail analyst at Forrester research. (Target announced that sales through much of March were up 20 percent over last year.) “This is incredibly unfair; this is not something that capitalism drove. And it not only hurts them in the near term, but it also has really long-term, lasting repercussions that they have to climb out of and others don’t.”
For department stores like Sears and J.C. Penney that were already on the brink of closure, the coronavirus could be the final nail. For others like Macy’s and Kohl’s, whose situations weren’t previously great but not quite as dire, extended closures could lead to a cash squeeze within five to eight months and potential defaults on loans, according to analysts at Cowen Research. To get ahead of the situations, permanent store closures and layoffs are plausible. The federal government has boosted unemployment pay by $600 a week for four months, meaning many furloughed retail store employees will get their full pay during that time frame. But will their job still exist when the economy reopens?
“I am really concerned,” said Kaness, of Lucky Brand. “I tend to focus on the human element first, and there’s going to be a lot of people that have to get re-skilled and retrained and readjust how they think about the rest of their careers.”
“We all know they needed to be right-sized at some point,” Kahan, of Birkenstock, added about department stores like Macy’s and Kohl’s, “and ... this virus might be the revolution to cause it. If it is, you have a lot of people out there that could become Amazon warehouse [and] Amazon [delivery] workers. It’s like you are running out of points of distribution. How many places are a conduit to the end consumer?”
Amazon and Walmart are set to benefit from the pandemic — in terms of both sales and expanding their labor forces. But both companies’ labor practices have come under fire in the past, and the pressures of the pandemic are intensifying these debates, particularly for Amazon. Warehouse workers at both companies have said their employers have not been transparent enough about Covid-19 cases in their facilities and have been too slow to issue them protective gear.
Last week, workers at a Walmart e-commerce warehouse in Pennsylvania told a local news site that at least nine of their colleagues had tested positive for Covid-19 but that the retailer was not taking the situation seriously enough. After the publication contacted Walmart with questions, the company temporarily closed down the facility.
For Amazon, the health crisis and the surge it created in online shopping have only exacerbated the company’s labor issues. Before, Amazon labor critics focused mainly on what some characterize as a brutal pace of work at the company’s facilities. Now, some workers across its network have argued the company isn’t adequately protecting its warehouse and delivery workers who are risking their lives to keep its business running.
Attendance at Amazon facilities has fallen as much as 30 percent, according to the New York Times, presumably a combination of employees who won’t risk their health for a paycheck as well as those who have been impacted by the virus. Workers in at least three Amazon facilities in the US have staged walkouts, including Christian Smalls, an organizer at the company’s Staten Island, New York, facility. Amazon fired him the same day he led a walkout, saying he violated a 14-day quarantine that the company imposed after he had been in close contact with a colleague who tested positive for the coronavirus. (Smalls believes he was fired in retaliation for his activism.) And after notes leaked from an Amazon executive meeting showing the company’s top lawyer making derogatory remarks about Smalls and strategizing about targeting him in the media, it prompted tense debates among some Amazon corporate employees.
If this is the situation now, at a time when Amazon is in the spotlight and its executives are calling their front-line workers “heroes,” what does that mean for a post-pandemic world where Amazon might have even more hiring power, with fewer jobs to go around and scores of retail workers looking for work?
Amazon and Walmart are already the top two private-sector employers in the US, and Amazon boasts pay and benefit packages in its warehouses that are unmatched by most of its retail peers. For Amazon, any talk of labor also has to acknowledge the 200,000-plus robots already automating certain tasks in its facilities, and the possibility that the company might be inclined to invest even more in robotic labor because of the disruptions this crisis has caused among its human workforce.
Kaness says as more sales move online, the human touch provided by in-store labor won’t be as necessary.
“Amazon to me has always been a software company that sells things versus a retailer that’s great at data analytics,” he said. “Software companies are designed for greater efficiency [as they grow]. Retailers, not so much.”
Amazon’s fresh moment
The crisis has further strengthened retail giants’ current footholds while positioning them for new successes, and Amazon may have the most to gain.
While Amazon has struggled to get ahead in the grocery business, Walmart is already the largest seller of groceries in the US, with grocery sales that are 50 percent larger than the top traditional grocer, Kroger. Three years ago, Amazon’s grocery delivery services were still struggling enough that the company spent nearly $14 billion to acquire Whole Foods. Today, things are different. The company rolled its Amazon Fresh delivery service under its main Prime membership program in the fall, simultaneously eliminating the extra monthly fee and lowering the barrier to usage for customers. In the weeks after those changes, Amazon’s grocery delivery sales basically doubled year over year, according to estimates from the research firm Second Measure.
Now, during the pandemic, online grocery sales are soaring as many people try to avoid stores. This positions Amazon, which offers fresh grocery delivery from both Whole Foods stores and Amazon Fresh warehouses, to become the go-to online grocer for Prime members, with competition from Instacart, Walmart, and smaller regional players for non-Prime members. (One surveyshowed Walmart, which offers both curbside pickup and delivery, as the top choice for new online grocery shoppers in early March.)
Another survey, from RBC Capital Markets, found that Amazon was the most popular online grocery destination for new shoppers over the past month, with 60 percent of respondents saying it was their first choice. Of those who use Amazon for grocery shopping, 34 percent said they are placing an order at least once a week, compared to 21 percent in the 2018 survey. Amazon Fresh and Whole Foods delivery sales rose more than 400 percent year over year the week of March 16, Second Measure estimates.
“If you’re Amazon right now, you couldn’t have caught a better break,” Kahan, of Birkenstock, said. “Grocery stores are also doing good, but the difference is when this is over, the grocery stores go back to just being grocery stores. But if you didn’t have the Amazon app before, you do now.”
With even more consumer adoption, competition concerns could follow. Take, for example, Amazon’s relationship with Birkenstock. Kahan, the CEO, has been a years-long critic of Amazon, dating back to a 2016 spat over counterfeits that resulted in Birkenstock ending its wholesale relationship with Amazon.
In late March, though, as coronavirus cases in the US were growing rapidly and store closures followed, Kahan reconsidered his options. Birkenstock still relies significantly on wholesale orders from brick-and-mortar chains like Journeys to reach certain sections of its customer base, but those retail chains are now closed. So Kahan did something that would have been completely off the table just 30 days earlier: He gave Zappos — the Amazon subsidiary with which Birkenstock has maintained a relationship — permission to start pushing some Birkenstock goods onto Amazon.com.
“Zappos is a long-time partner of Birkenstock and I have extensive relations with their organization and we share mutual respect,” Kahan wrote to Recode in a follow-up email. “[I]n times like this, smart people have to get creative with new approaches to the business.”
“It’s gonna become just Amazon, [brands selling] direct-to-consumer digitally, and then everyone else is just going to be everyone else in a bucket,” he added.
Kahan may be oversimplifying, but his point is clear: The pandemic has accelerated the shift to online shopping, and Amazon, which controlled nearly 40 percent of the online retail market in the US already, stands to gain the most.
For decades, Walmart was viewed as the big, bad bully of retail, known for cutthroat negotiations with brands resulting in bargain-basement prices that were great for consumers but terrible for Main Street shops unable to match them. In many ways, Amazon now carries the Walmart mantle. It, too, has been known to try to squeeze wholesale brands to their breaking point to provide customers low prices, while also being blamed for forcing mom-and-pop shops out of business. While Amazon provides a destination for hundreds of thousands of small and midsize sellers to make a living, it also competes intensely against those same merchants who supply vast amounts of merchandise for its virtual shelves.
Will Amazon’s essential role give it an antitrust pass?
That competition with its own sellers, and the fact that its algorithms and policies can make or break an Amazon seller’s business, have made Amazon a target over the past year for antitrust scrutiny from Congress and the Federal Trade Commission. But what Amazon’s role during this crisis — the good and bad — might mean for regulatory scrutiny is not yet clear. An Amazon spokesperson declined to comment on it.
The company has indeed done good during the crisis, in part simply by doing what it always does: making merchandise from the largest product catalog in the US available for online purchase and having it land at a customer’s door in a matter of days. It also recently limited the sale of N95 masks and other medical equipment exclusively to hospitals and government entities, eliminating the commission it would normally take from those sales to try to encourage more merchants to source those goods to sell on Amazon.
Yes, the company has struggled with delivery delays for general merchandise, price-gouging on the most in-demand products, and an overwhelmed grocery delivery business that has some customers searching for a delivery slot dozens of times a day. But it’s hard to imagine Amazon’s tens of millions of US customers being in a better spot during the pandemic if Amazon weren’t around. Might the good Amazon is doing lead lawmakers and regulators to give the company a pass?
So far, the top lawmaker leading the House antitrust investigation into Amazon and the other Big Four tech giants said his probe will continue, though the release of a report due by the end of March is delayed. The FTC has also informally been probing Amazon, and there is no evidence that it has stopped.
Stacy Mitchell believes that’s the right decision. She’s the co-director of the Institute for Local Self-Reliance, a nonprofit that advocates for an economy built on strong independent businesses. She’s also a longtime critic of both Walmart and Amazon. In a 2016 report about Amazon’s growing power, Mitchell wrote:
Amazon presents a vastly more dangerous threat to competition than Walmart, because its ambition is not only to be the biggest player in the market. Its intention is to own the market itself by providing the underlying infrastructure — the online shopping platform, the shipping system, the cloud computing backbone — that competing firms depend on to transact business. In effect, Amazon is turning an open, public marketplace into a privately controlled one.
That infrastructure — specifically the shopping platform and the shipping system — has been strained during the crisis amid shopping surges and accompanying staffing issues. But it is still intact. And the company is making big decisions with far-reaching implications to keep it that way. One of the biggest was Amazon’s announcement in mid-March that it would stop accepting nonessential goods into its warehouses from vendors and Amazon sellers so it could prioritize items from six product categories it deemed essential. That decision may have been the right one, Mitchell said, but she argues that the fact that Amazon can even make a decision that big for society during a pandemic is a problem.
“That’s why I think we need to have robust public oversight over the decisions Amazon makes,” she said. “It can pick winners and losers, and now that has been vastly expanded because the offline market is essentially gone. And so Amazon’s domain is even more vast than it was before.”
Amazon has argued that it competes against both online and brick-and-mortar retailers and accounts for less than 4 percent of overall retail sales in the US, as well as less than 4 percent of the overall grocery market in the country. The company also maintains that its sellers are crucial partners since they account for nearly 60 percent of sales on Amazon shopping sites.
So if Amazon’s power is growing, where do traditional retailers go from here? It’s common knowledge in the retail industry that the US has more stores than it needs, so in some cases the crisis will only accelerate closures that would have happened anyway. For those who would have survived, the new CARES stimulus act does provide tax refunds to some retailers that have remodeled stores over the past two years. The Fed is working to give midsize and big companies access to more credit. Small businesses also have paths to get some financial help through the act, though the main lending program has been beset by early issues. As of now, there is no massive federal bailout coming to Big or Small Retail in the way there is for Big Airline. And that could be a big problem.
Speaking on CNBC recently, the president of the National Retail Federation said retailers “shouldn’t [have to] be worse off at the end of this than they were when they went into it.”
He was alluding to all the brick-and-mortar retailers that have been forced to shut down. On the other hand, there will be at least one big retailer that should exit the pandemic much better off: Amazon.