How the Prolonged Government Shutdown Is Impacting Retail & Consumer Sentiment

Questions are starting to arise over the impact at retail of the partial government shutdown, particularly since 800,000 federal workers are likely to find themselves again without a paycheck.

Friday will represent the 35th day of the partial government shutdown in Washington, D.C.

J. Michael Stanley, managing director and head of factoring at Rosenthal & Rosenthal, said that so far, it has been hard to tell what the impact has been on retail sales. That’s because tomorrow will represent only the second time federal workers will be without a paycheck. They are either working without pay or have been furloughed. And since most jobs aren’t considered high-paying, there are many higher-end brands and retailers that might not even be impacted by the shutdown, he said.

That doesn’t mean the concern isn’t topmost on people’s minds. Dana Telsey of Telsey Advisory Group said investors at ICR’s retail and apparel conference last week had questioned the shutdown’s impact on consumer spending.

“While limited to 800,000 employees, the effect could begin to weigh on the broader economy, and demand for social services may increase. The longer government employees go without paychecks, the greater the peripheral effect on the economy,” the retail analyst said.

Brett Rose — CEO of United National Consumer Suppliers, a wholesale distributor to several retail giants, off-price retailers and Amazon resellers — said: “If the government reopens by early February, the reverberating effect of the shutdown could force large retailers to adjust their 2019 numbers just to balance out profits made last year.” He also cited possible tax refund delays and a decline in consumer confidence.

The University of Michigan consumer sentiment index has fallen to 90.7, from 98.3 in January. The most recent data from The Conference Board’s Consumer Confidence Index won’t be available until Tuesday.

“If this shutdown continues, at some point, you will see consumers going back to purchasing products that are needed,” said Jessica Ramirez, retail research analyst at Jane Hali & Associates. She was referring to consumer staples such as items needed for day-to-day living and food on the table, with shoppers passing on discretionary items such as footwear and apparel purchases to freshen up one’s wardrobe.

The shutdown is the longest in U.S. history and is the result of an impasse over President Donald Trump’s demand for $5.7 billion in federal funding to erect a U.S.-Mexico border wall. On Saturday, he offered temporary protections from deportation for young people brought over illegally in exchange for the border wall. Democrats rejected the proposal as soon as it was made.

While the Senate is expected to vote on competing bills to end the partial government shutdown on Thursday, at least there’s finally an attempt at trying to end the political paralysis that has hampered Washington.

Sen. Charles Schumer (D-N.Y.), the Democratic leader, proposed funding the government through Feb. 8 without a wall. The proposal by Sen. Mitch McConnell (R-Ky.), the Senate Majority Leader, calls for funding the border wall and reopening parts of the shuttered government. While neither proposal is expected to garner the required number of votes, there is hope that both parties are finally seeing the need to curtail their posturing and reach a bipartisan agreement to end the shutdown. And late Wednesday, there was talk that House Democratic leaders were working on a proposal involving $5 billion in border security.

Finding some resolution would help in other business areas, not just consumer spending.

A report from American Shipper said a number of duty refund programs for imports are on hold as Customs and Border Protection staff remain on furlough. Last week, apparel giant VF Corp.’s CFO, Scott Roe, told Wall Street analysts during a third-quarter earnings conference call that its planned spinoff of its jeans business might get delayed due to the shutdown. He said regulatory documentation was filed with the Securities and Exchange Commission last month, but there is no indication yet of when the filing would be made public.

Further, there are also at least two fashion companies — e-commerce retailer Revolve and denim brand Levi Strauss & Co. — that have indicated plans for an initial public offering. But their respective paperwork also is tied up in SEC backlog. And there’s risk that when the review process finally gets completed, financial market conditions might see investors deciding they no longer have an appetite for new public offerings.

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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