Americans rely on the retail industry every day to buy groceries, clothes, and other items in order to provide for their families. Retail is and always will be a crucial sector of the American economy. Today, the COVID-19 pandemic has delivered a significant blow to many traditional retail businesses, as millions of Americans stay home and reduce spending during the crisis. Many have been forced to lay off or furlough their workers. The retail sector will rebound, but the pandemic has exacerbated a number of long-term challenges for the sector and will likely transform a number of existing businesses:
- Pressure from COVID-19 – Retail sales have decreased 15.1 percent since March of this year, while sales at clothing & accessory stores are down nearly 90 percent from 2019. Retailers are sitting on billions of dollars of inventory, preventing many from paying their obligations.
- Mass layoffs & furloughs – The retail sector shed 2.1 million jobs in April alone, led by 740,000 lost jobs at stores that sell clothing and other accessories.
- Rise of ecommerce – Convenient e-commerce sites like Amazon have altered Americans shopping at traditional brick and mortar stores. From 2000-2019, e-commerce as a share of total sales increased from 0.6 percent to 11.4 percent. UBS anticipates that online sales will rise an additional 15 to 25 percent by 2025, leading to the closure of 100,000 retail locations.
The private equity industry has worked for years to save and strengthen household brands and stores across America, and our industry will play an essential role in retail’s eventual comeback. Our firms have turned around a number of companies, including Dollar General, Michaels, and BJ’s Wholesale Club. Amid this severe downturn, private equity has stepped in with critical capital, industry expertise, and a proven track record to support retailers struggling to survive. For example,
- As CNBC reported, “The company said its retail revitalization program, backed by Brookfield and its institutional partners, will focus on taking noncontrolling stakes in retailers to assist them with their capital needs during this time of “dislocation.”
Private equity has provided a necessary lifeline to many of these businesses, and fund managers will work tirelessly to help them survive shoppers’ abrupt retreat. As National Review contributor David Bahnsen notes, “equity investors lose money when a company goes bankrupt, and therefore they have every incentive to help it avoid that fate.” Nationwide, retailers depend on outside support and investment from private equity, without which, many would fall victim to the structural challenges facing the industry. |
