Macy's Inc. closed its stores on March 18 in response to the coronavirus pandemic and is furloughing the majority of its workers.
Photo: Andrew Harrer/Bloomberg NewsThe new coronavirus pandemic is deepening a national digital divide, amplifying gains for businesses that cater to customers online, while businesses reliant on more traditional models fight for survival.
The process is accelerating shifts already underway in parts of the U.S. economy in ways that could last long after the health crisis has passed, some analysts say.
“What we’re in right now is a sudden and extreme version of what had been a much longer, slower-moving trend,” said Jed Kolko, chief economist at job site Indeed.
Many bricks-and-mortar retailers, which had seen falling foot traffic for years due to online competition, have now shuttered their stores while online merchants watch sales boom. And sectors that had long resisted the move online are now joining in: Doctors and therapists offer telemedicine appointments while their offices sit nearly empty; yoga studios and other fitness providers are offering remote sessions; schools and universities have moved classes online.
The news media is also seeing a longtime trend gain momentum. While the coronavirus pandemic is driving reader traffic to news sites, the crisis is delivering a punishing blow to already-struggling local publishers hit by declining advertising revenue.
The transition is also driving labor force upheaval, with those who can work online still drawing paychecks while workers who depend on face-to-face contact suffer.
A record 3.28 million workers applied for unemployment benefits in the week ended March 21 as widening swaths of American commerce were shut down, and economists surveyed by The Wall Street Journal predict data out Thursday will show 3.1 million more filed claims in the week ended March 28.
The big question, economists say, is whether the changes created by this sudden, forced experiment will prove permanent after the coronavirus pandemic eases. If so, that could transform the U.S. economy and open the way to new types of businesses and providers.
Nowhere is this more apparent than in the retail industry, one of the largest employment sectors in the country, with 15.7 million workers in February. As state and local authorities have ordered nonessential businesses to close to stem the spread of the virus, bricks-and-mortar stores are reeling and online sellers are accelerating their dominance.
Macy’s Inc., Gap Inc. and other retailers will furlough tens of thousands of employees beginning this week. Meantime, Walmart Inc., Amazon.com Inc. and CVS Health Corp. are among about a dozen large companies looking to hire nearly 500,000 Americans in coming weeks—many of them in delivery and online fulfillment positions—to manage a shopping surge sparked by the coronavirus pandemic.
As shoppers stayed away from stores, U.S. e-commerce sales rose 24% from March 1-17, compared to the same period a year ago, according to Rakuten Intelligence, which tracks electronic receipts. General-merchandise retailers have seen major increases, with Amazon.com, Target Corp. and Walmart all growing share as people stock up on household mainstays.
Social distancing due to the pandemic, and the shutdown of malls, department stores and other nonessential businesses, is pushing more consumers to shop online, including many who didn’t before, such as the elderly who are at particular risk in the pandemic.
“We have a retail ‘survival of the fittest,’ ” said Craig Johnson, president of the retail consulting firm Customer Growth Partners. Retailers that have already transitioned from “bricks to clicks” are less vulnerable to the sudden shift, while “those in denial are getting crushed,” he said.
The pandemic is also fueling a shift to e-commerce in corners of the retail universe in which consumers have historically resisted going online, such as beauty products and groceries.
Although more buying shifted online in recent years, American consumers generally stuck to purchasing certain products at bricks-and-mortar retailers for a plethora of reasons. Shoppers, for instance, like to smell perfumes and try out makeup before buying. Grocery delivery, while on the rise, can be more costly and limiting than a trip to the store, and isn’t available everywhere. Makers of household mainstays, from toilet paper to pet food, have been slower to grow online sales.
The beauty industry has seen a dramatic shift since the start of the pandemic. Roughly 70% of beauty sales involved a trip to a retailer prior to the crisis, whereas now close to 70% of industry sales are online, according to consulting firm OC&C Strategy Consultants.
Now that consumers are more accustomed to buying such things online, they could continue to do so after the pandemic ends.
“There’s a very, very short window of opportunity for lots of brands to up their game,” said Malcolm Pinkerton, a retail expert at market-research firm Kantar, who expects many consumers to continue using digital platforms even after the coronavirus pandemic.
Surging sales don’t necessarily equate to higher profits. Many products in highest demand—necessities such as toilet paper, paper towels, cleaning products and other household staples—are relatively low margin, compared with less essential items such as clothing, toys and beauty products. Target, for instance, has warned investors that, despite a 20% surge in sales in March, gross margin could fall during the rest of the quarter.
EO Products is one company getting a crash course in e-commerce. The maker of high-end bath and body products, including hand sanitizer, has relied on retailers for most of its sales for more than 20 years. Chief Executive Tom Feegel said so-called direct-to-consumer sales on the company’s website exploded starting in March, and the company had to take steps to ensure it set aside products for online buyers as retailers clamored for more supply.
—Sharon Terlep contributed to this article.
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Write to Harriet Torry at harriet.torry@wsj.com
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