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Biden-backed stimulus checks could give the retail sector a badly needed boost


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Biden-backed stimulus checks could give the retail sector a badly needed boost

Large e-commerce players and big-box retailers stand to gain if U.S. President Joe Biden's proposed $1.9 trillion coronavirus relief package is enacted, as pandemic-weary consumers might splurge on anything from a new TV to a long-postponed vacation, retail analysts and policy experts say.

Biden is proposing a COVID-19 rescue package that would provide $1,400 per-person checks for working families, on top of the $600 checks approved in December for a total of $2,000. It's part of a wide-ranging package designed to assist pandemic-stricken Americans and stimulate the economy with measures including enhanced unemployment benefits and raising the federal minimum wage to $15 per hour, more than double the current rate of $7.25.

If the proposal is approved, the relief checks would likely be used by many lower-income households to pay down rent, debt and utility bills, experts say. But higher-income Americans may put the extra cash toward bigger-ticket consumer items.

Product categories such as auto parts, home goods, electronics, food and discount items could see a particular increase in demand, benefiting companies such as Walmart Inc., Inc., and Dollar General Corp., experts said.

Consumers could also use the stimulus funds for payments on a new car, a vacation, or other items that people have been holding off on buying for a year, said Katie Thomas, who leads the Kearney Consumer Institute, an internal think tank at management consulting firm Kearney.

"For people that are still employed, I think this will be a good reason to really kind of buy something that they maybe would have felt guilty buying before," she said in an interview.

The Biden administration did not respond to inquiries about income thresholds for the proposed $1,400 checks. But if they stay the same as the last round of $600 checks, individuals whose adjusted gross income does not exceed $75,000 and married couples filing jointly whose adjusted gross income does not exceed $150,000 would qualify for the full amount.

"In some ways, this does feel like free money," Thomas said.

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A Walmart store display. Walmart is one of several retailers that benefited from $1,200 stimulus checks given to eligible Americans in spring 2020.
Source: Walmart

Tom Forte, an analyst with D.A. Davidson, said the proposed stimulus cash could directly benefit a wide range of e-commerce and brick-and-mortar retailers including Amazon, Walmart and Target Corp. All
three of those companies have seen sales soar during the pandemic as consumers pivoted to online shopping and stocked up on food and other essential items. Forte said discount retailers like Dollar General and more specialized e-commerce players like Etsy Inc. and Inc. could also benefit.

The money is likely to also trickle into the hard-hit restaurant industry, particularly to establishments offering takeout orders, benefiting the likes of food delivery companies such as DoorDash Inc., he said.

Auto companies like Inc., which have been deemed essential during the pandemic, could also see a sales lift, said Forte, noting that recipients of previous stimulus checked used the extra money to fix their cars. "This should be a positive for a large number of e-commerce companies, including Amazon," he said.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Not a done deal

There's no guarantee that Biden's proposal will pass Congress, but the chances of additional stimulus checks are higher now that Democrats have won control of both the House and Senate, said Ed Mills, Washington policy analyst with Raymond James, in an interview.

If Biden's proposal passes, "the expectation is that there will be an uplift in consumer discretionary spending," Mills said.

However, some Republican senators have expressed skepticism about another round of checks, meaning that gaining the necessary approvals could "be a longer, harder fight" than anticipated, Mills said.

Much-needed boost

Any additional stimulus relief would provide a boost to retailers at a time when the economy is still reeling from pandemic-related losses and U.S. retail sales declined for the third consecutive month in December 2020, missing economists' forecasts. Seasonally and calendar-adjusted retail and food services sales fell 0.7% month over month in December 2020, to $540.92 billion, following a revised 1.4% decrease in November 2020.

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Meanwhile, U.S. initial unemployment claims surged to nearly 1 million in the first week of 2021, hitting the highest weekly total since August 2020, according to Labor Department data.

The National Retail Federation threw its support behind Biden's proposed stimulus plan, with President and CEO Matthew Shay saying in a Jan. 14 statement that "we support providing critical government assistance in the form of direct payments to families and individuals whose lives have been disrupted, further aid for small businesses across the country, and tools to keep businesses open and the economy growing."

Discretionary decisions

The economic impact of the pandemic has been "very uneven" among consumers, particularly affecting those making $40,000 or less per year, said Mills of Raymond James.

Many individuals lost their job during the coronavirus lockdowns of 2020, leading them to use stimulus money to pay for expenses, such as food, that would typically be bought using their own income.

"For a lot of individuals in that income bracket, these checks are likely to go for very basic necessities — rent, food, utilities," he said.

Forte, of D.A. Davidson, said lower-income households are more likely to receive a check. For that reason, Walmart and discount retailers such as Dollar General and Dollar Tree Inc. could benefit the most, he said.

But there is a large swath of the economy that has had limited impact, as many individuals remain fully employed, have not seen wage reductions and are able to work from home, meaning any stimulus money they receive could be spent on discretionary items, he said.

Any lift in spending could directly benefit companies like Amazon, said Daniel Ives, managing director with Wedbush Securities, in an interview. The company didn't respond to inquiries, but with the U.S. essentially in a "semi-lockdown" over the next three to six months, Amazon is "front and center in terms of benefiting from these checks," he said.

The potential cash infusion could also benefit the likes of Apple Inc. and other consumer electronics companies, Ives said. "We saw over the holiday a massive spending on AirPods so I think you could see consumers spending on that," he said. "You are seeing more and more focus on new gaming consoles, with the new Xbox and PlayStations out."

Any additional spend would come on top of a sales boost seen by Walmart, Target and Best Buy Co. Inc. after qualifying Americans received a round of smaller $1,200 checks last spring as part of the CARES Act.

Target declined to comment for this story, but the company's CEO Brian Cornell said during a first-quarter conference call in May that Target "certainly saw an uptick" starting on April 15 as stimulus checks arrived across America.

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A Target store in Richmond, Texas. Experts say Target could benefit from $1,400 stimulus checks proposed by President Joe Biden.
Source: Target

Walmart also didn't respond to inquiries, but CEO Doug McMillon said in a first-quarter conference call last year that stimulus spending provided a sales boost in categories such as apparel, televisions, video games, sporting goods and toys. "Discretionary categories really popped towards the end of the quarter," he stated.

Best Buy didn't respond to inquiries, but CEO Corie Barry said in a first-quarter call that the company saw a sales benefit during the last three weeks of the quarter "as customers undoubtedly chose to spend some of their government stimulus money on the products and services we provide."

But some customers are expected to be more conservative about saving money and allocating it for essentials rather than special purchases, said Zain Akbari, a Morningstar analyst, in an email message.

"Shoppers are likely to place value a bit on purchases," he said.

Consumers are also likely to continue favoring home-related categories as the slow pace of vaccinations suggests society is still a way off from "normal," Akbari said. Stimulus dollars could be spent at companies like Home Depot Inc. and Lowe's Companies Inc. that have benefited from the pandemic-induced acceleration in online shopping.

Kearney's Thomas added that consumers do remain price-sensitive as they buy more items during fewer trips. "I think they will still want to find the best bang for their buck, like they are finding the right balance of function and fashion," she said. "We have so many options today, people can usually find that."

On the road again?

Additional stimulus spending could also boost hard-hit areas such as travel, apparel and beauty as consumers get ready to reinvest in those areas and the Covid-19 vaccine eventually becomes more widely available, experts say. The coronavirus pandemic has had a particularly negative impact on travel platform companies like Booking Holdings Inc. and Expedia Group, Inc.

"I've talked to folks in the travel sector, and they are seeing some optimism, some people starting to book for the back half of the year," Thomas said. "I think with the bigger stimulus checks, you'd really see a meaningful lift in some of those larger categories."

Mills concurred, saying many consumers have adjusted their risk appetite. More money will probably go toward vacations if this latest round of stimulus checks is approved than the last round "because people have kind of adjusted to what they are personally willing to do during the pandemic," he said.