Delta Variant Weighs on Retail Sales

Retail Sales Fall in July

Retail sales declined in July, which fueled concerns about economic recovery for investors. Spending at US retailers fell 1.1% last month compared to levels in June.

This is a reversal from earlier in the summer when sales at retailers were surging and consumers flush with extra cash and a desire to spend went shopping in droves. Now, worries about more pandemic shutdowns and restrictions are weighing on consumer sentiment, which declined sharply in the beginning of August. Vehicle sales showed the most significant drop. Consumers also spent less on clothing, furniture, and sporting goods in July.

Walmart Isn’t Feeling the Impact...Yet

Walmart (WMT), the nation’s biggest retailer, has not felt the impact of rising COVID-19 cases so far. The company said it is seeing an increase in the number of customers wearing masks in stores but its foot traffic remains high as back-to-school shopping season kicks into gear. What’s more, the retailer has not seen any panic buying among consumers. This was common during the early days of the pandemic and caused shortages of toilet paper and other household goods.

For its second quarter, Walmart’s comparable sales in the US rose 5.2% while ecommerce sales increased 6%. Though Walmart did see climbing sales during the period, its growth rate in the quarter was slower than earlier in the year.

Home Depot’s Growth Slows

Home Depot (HD) also reported growth in sales during its second quarter, but that growth was slower than what the company experienced last summer during the pandemic-induced DIY boom. The retailer said demand remains strong among consumers but supply-chain issues and increasing material prices are weighing on growth. Comparable sales in the second quarter were up 4.5%. In the previous four quarters, comparable sales grew by over 20%. Business at Home Depot has remained steady in the first two weeks of August but it is not clear if that trend will continue.

Investors face significant uncertainty when it comes to the retail industry, but they will get more information soon in the form of earnings reports from other large retailers. Lowe’s (LOW) and TJX Cos. (TJX) (the parent company of TJ Maxx) are scheduled to report today, and Ross Stores (ROST) will publish results tomorrow. It will be interesting to see how the Delta variant of COVID-19 impacts their prospects.

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High-End Steakhouses’ Recovery at Risk

Delta Variant Could Curb Spending on Steaks

The Delta variant of COVID-19 and rising beef prices are causing difficulties for steakhouse operators including Ruth’s Hospitality (RUTH), Bloomin' Brands (BLMN), and Landry’s. Upmarket steakhouses rely heavily on corporate customers and affluent travelers to thrive. With companies delaying their reopenings and consumers worried about catching the transmissible variant of COVID-19, traffic at steakhouses could drop. These restaurants are far more dependent on in-person dining than fast-food restaurants and fast-casual restaurants.

As steakhouses deal with the prospect of falling demand, they are also facing surging beef prices. In July, wholesale prices for beef jumped 40% year-over-year.

Steakhouse Operators Better Equipped for Outbreaks

Despite the rising coronavirus cases and rising prices for beef, steakhouse operators feel that, compared to last year, they are more equipped to handle pandemic shutdowns if they were to happen in the future. Many establishments already have outdoor dining options, as well as home delivery, which could offset declines if new shutdowns take place. Fleming’s, a high-end steakhouse owned by Bloomin’ Brands, saw takeout account for 47% of its sales during the height of the pandemic. Now that is down to about 8%, but the company would be able to ramp up its takeout offerings again.

Focusing on takeout and outdoor seating may soon become more important for steakhouses. While the number of reservations at steakhouses surged in the first six months of the year as vaccinations rolled out, sales peaked in early July. They have now fallen, albeit slightly, in early August.

Ruth’s Hopsitality’s Strategy

To counter any COVID-19 declines in sales, Ruth’s Hospitality, which owns Ruth’s Chris Steak House, is counting on its takeout business, which was almost nonexistent before the pandemic and now accounts for about 7% of its sales. The steakhouse operator closed restaurants which could not support takeout and is now working on attracting a younger, more affluent demographic. As for rising beef prices, Ruth’s Hospitality locked in prices for about 10% of its purchases. However, rising costs could still weigh on its balance sheet.

The Delta variant of COVID-19 is permeating all areas of the US economy as consumers worry about the impact it will have on their health and bank accounts. This time around, steakhouse operators have learned a thing or two, which should help the industry weather future outbreaks and potential shutdowns.

Hotel Operator Tests à la Carte Menu of Amenities

MCR Wants to Charge You to Work Out

MCR Hotels, one of the biggest hotel-chain operators in the US, is testing a new way to make money from its guests: an à la carte menu of amenities. This is a new strategy for the hotel industry, but is something airlines have been doing for years. By charging for amenities like early check-in or access to the pool on a busy weekend, MCR can lower the rates it charges at some hotels, boosting its occupancy rates.

Guests may be resistant to paying extra to work out in the gym, but MCR is betting that once they get used to it, this business model will be a success.

Hotel Owners Look for More Revenue

While some of larger hotel operators are skeptical of MCR's new pricing model, some hotel owners say this strategy will help make up for revenue lost during the pandemic. Hotels have seen an uptick in business since vaccinations rolled out and restrictions eased. However, the Delta variant is threatening that recovery. Hotel revenue per available room is not expected to return to normal until 2024.

The hotel owners and operators are also seeing their costs rise. The price of labor is rising. Additionally, COVID-19 safety precautions are costly to implement. To offset those increased expenses, hotels are trying new ways to generate revenue from guests.

Looking Ahead

Charging guests for services like gym and pool access is new territory for the hotel industry. But charging extra for some special services is nothing out of the ordinary. For instance, some hotels already charge for WiFi access and others have moved to charging extra for daily housekeeping.

Big hotel operators including Marriott (MAR) and Hilton (HLT) are not sold on the idea, fearing it will hurt them with competitors which offer perks like gym access for free. They also think it would be met with pushback on the part of the consumers. However, the same could be said of the airline industry when it started charging for checked luggage. Fast forward to 2019 and the airline industry’s à la carte revenue was $75.6 billion. It will be interesting to see if hotels will be able to achieve this kind of success through the new strategy.