US job losses are really hurting restaurants and retailers

Even when eateries and shops reopen, consumers may be wary about returning

A closed restaurant in the Lower East Side neighbourhood of New York City. All New York non-essential businesses were ordered to close or have their workers work from home during the pandemic. AFP

Who remembers their last meal at a sit-down restaurant? Better yet: who knows when their next one will be?

That's the question bedevilling not just diners but Wall Street, where analysts and investors have seen investments in publicly traded restaurant chains like Olive Garden, Denny's and KFC owner Yum Brands crater amid shutdowns forced by the global coronavirus pandemic.

While some states like Georgia and Texas have recently taken tentative steps to permit restaurants, shops and other businesses to reopen, the sector remains in deep crisis. Of the more than 21.4 million jobs lost since the pandemic struck the US in March, 28 per cent of them are in the restaurant and bar industry and another 10 per cent are in retail.

“Following a natural disaster, restaurants are the last businesses to reopen and to start recovery,” the National Restaurant Association said in a statement. "This is a nationwide disaster that’s going to need a nationwide plan for restaurants to recover.”

Orlando, Florida-based Darden Restaurants, which owns the Olive Garden and LongHorn Steakhouse chains, told investors its sales had already fallen by nearly half in its current quarter, with one month left to go. Denny’s sales were 76 per cent lower in April alone. Both restaurant chains have cut staff as demand plummeted.

Retailers, especially those focusing on clothing and apparel are also hurting. Kohl’s shut down stores nationwide in March and only started reopening in some states earlier in May. Gap took similar measures, shutting down stores and furloughing workers.

Analysts have said that even when restaurants and shops reopen, consumers may be wary about returning any time soon. Shopping habits could change permanently in the aftermath of a health and economic crisis unprecedented in modern times.

The S&P 500 consumer discretionary sector, which includes restaurants and clothing retailers, shed more than 13 per cent in March as businesses started shutting down, making it the sector's worst month since the financial crisis. The sector has recovered some of its losses, but is still down 6.7 per cent for the year.

“As we move forward, we’ll have to see what consumers are doing and how willing they are to spend,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “We do expect some cautiousness from consumers going forward. As things open up, we’ll get a better idea where demand lies.”