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Investors have been selling through most of the asset classes over the recent past. Since the Australian Government has introduced some life-saving measures for the economy, it is likely to be beneficial for retailers.
As store closures intensify across the globe, the detrimental consequences for retailers – especially non-essential retailers – are likely to haunt the investor sentiment, but much of selling appears to be done already overall.
Markets had fallen over 30% in such a quick span of time, breaking historical levels and sparking an overhaul for technical traders. Presently, we are seeing that markets are starting to find some footing, still we must note that bear markets exhibit volatility.
Major Retailers Shut Stores in the West
On Monday, in the US, the employment crisis made further way into the economy as major retailers were forced to close stores in the face of c. In most of the countries, retailers tend to employ a large number of the workforce because of the labour-intensive business models.
As a result of the store closures, the cash flows of the retailers are likely to hurt, thereby prompting the retail companies to force majeure pay of the workforce – leaving dents in the pockets of the American workforce and potentially to consumption as well.
The US economy is majorly driven by its consumption prowess, and such consequences in the retail segment of the country are likely to spark massive unemployment, which had been very low over the recent past.
Spillovers of the unemployment crisis could make further ways into deeper in the economy by jeopardising consumption patterns of the American households as they try to cope-up with unpaid leaves.
US Retailer Macy’s noted ‘heavy toll’ due to the coronavirus on its business that is causing impact sales, thus cashflows. The retailer said that the employees would be furloughed, and it employs around 125k employees. Earlier Macy’s had noted to access its credit facility and suspended quarterly dividend.
Kohl’s also joined the list of the retailers triggering furlough as stores closures and public health measures in the country started to take a toll on its cash flows. In 2018 Annual Report, the retailer had 129k associates with a large part being part-time employees. Kohl has furloughed stores and store distribution associates as well.
Gap Inc. also introduced similar measures, putting a hold on its store employees in the United States and Canada. It restricted the pay of the employees until the stores are reopened, but other benefits would be paid to the employees. GAP has now shut down stores in North American market and Europe region.
Apparel retailers in the US had been filing for bankruptcies over the last decade, and the recent precipitate shock caused by the pandemic could further intensify the prospects of such events as a result of freezing sales, thereby invoking inability to service debt.
At this juncture, it is pretty unclear how long the public health measures would last and the life in the US would return to normal. The Federal Government had extended the social distancing measures until April 30, but the moves in the COVID-19 epidemiology curve are likely to set the tone for upcoming public health measures in the US.
It is also important to note that the United States’ St. Louis Federal Reserve has estimated that the repercussions of COVID-19 could translate to unemployment rate hitting ~32%. A while ago record-breaking 3.3 million initial jobless claims were filed in the US.
Also Read: Top Updates: ASX Defy Pessimism, Country’s efforts on Flattening the COVID curve
Team ScoMo Circling the Wagons in the East
In Australia, the conditions have gotten better recently backed by the measures introduced by the Commonwealth Government. Prime Minister Scott Morrison has taken unprecedented steps in saving the Australian economy.
Prior to the COVID-19 crisis, the Australian Government was likely to report a budget surplus, which has now given the PM additional headroom to unveil one of the largest stimulus packages to save the falling economy, unlike many other countries that are running large fiscal deficits.
Over the weekend, the PM has announced that the work has begun on the commercial tenancies, agreeing that short-term intervention is needed while there is more to do. National Cabinet agreed on a moratorium on evictions for the next six months to bring relief for the commercial tenants that are facing financial vulnerabilities as a result of COVID-19.
Commercial tenants also include retailers, and there is no doubt that some retailers are in financial distress due to the COVID-19 outbreak. The cabinet also urged for meaningful discussions between the stakeholder, which includes commercial landlords, tenants and bankers or financiers.
Also, the cabinet pitched for reductions/waivers in the rentals over a specified period for tenants; allowing tenants to terminate lease contracts and move for arbitration provided that the financial hardships are due to COVID-19, and other measures.
Major relief to retailers came yesterday after the Government announced the $130 billion wage subsidy labelled as ‘JobKeeper Payment’. In the subsidy, the businesses having severe impact due to COVID-19 would receive payments.
It was noted that the payment would be paid to employers for eligible employees who were their employees on 1 March 2020, among other conditions. It was noted that the Government is inclined to provide further cashflow support to the businesses.
Eligible businesses include the business with annual turnover of less than $1 billion, having a contraction in revenue of 30% or more. There are more requirements for the subsidy that could be retrieved at the PM’s website.
Super Retail Group Limited (ASX:SUL) ended the session with a 3.1% gain. Shares of Bapcor Limited (ASX:BAP) increased by 7.6%, AP Eager Limited (ASX:APE) was up by 1%, G.U.D. Holdings Limited (ASX:GUD) ended the session with a gain of 6.35%, JB Hi-Fi Limited (ASX:JBH) was up by 4.28%.
Some double digit movers in the retail space today
Mosaic Brands Limited (ASX:MOZ) was up by a whopping 28.3% by the close of the session, City Chic Collective Limited (ASX:CCX) was up by 32.7%, Nick Scali Limited (ASX:NCK) was up by 12.66%, Accent Group Limited (ASX:AX1) was up by 16.29%, Lovisa Holdings Limited (ASX:LOV) was up by 11.51%.
BOD Australia Limited (ASX:BOD) was up by 18.18%, Myer Holdings Limited (ASX:MYR) was up by 21.7%, Premier Investments Limited (ASX:PMV) was up by 10.82%, and Shaver Shop Group Limited (ASX:SSG) was up by 10.7%.
