The whole system hasn’t been upended, consumers have simply reprioritized based on shifting needs. In many ways, employees may simply need reassurances that the world isn’t ending and that there’s an observable pattern to consumer and market trends.
Many of us were introduced to chaos theory courtesy of Jeff Goldblum’s Dr. Ian Malcom in Jurassic Park. Also called the butterfly effect, it’s the idea that slight variations can have enormous consequences, and that details matter because they can end up changing the outcome in sensitive systems. However, an important part of chaos theory that Dr. Malcom fails to mention is organization; while a system may appear random, there are actually subtle patterns and internal structures determining results. If a drop of water rolls off of the back of your hand, you may not be able to predict how it will move, but that doesn’t mean the movements are arbitrary.
As cities begin to reopen and businesses adapt for the renewal of in-person retail and dining services, it’s becoming increasingly clear that the economy is not guaranteed to work like it did before. This has led some employees to become concerned about their investment strategies and wondering if they should make changes. However, plan sponsors can ease these concerns by providing additional context. Consumer behavior isn’t a big, unsolvable mystery. While a global pandemic is not quite a minute detail, the structure of chaos theory still holds true: it’s not that there is unpredictable chaos, simply that a large-scale health emergency is having significant effects on the market, and there are patterns that might be missed among all the rapid changes.
One area that has been hit hard is in-person retail. For many retailers, COVID-19 has caused not only immediate financial concerns, but a significant and possibly long-lasting behavioral shift-- customers lost their jobs and cut costs, and many live events were canceled as stay-at-home orders were issued. These sudden changes caused some uncertainty, but the emerging trends followed some basic common-sense parameters; consumers pulled back on spending related to recreation, travel, and entertainment out of the home, while e-commerce sales skyrocketed because people found themselves bored at home. In-home entertainment spending has grown at a time when even journalists refuse to cover in-person events, declining to encourage readers to risk their health.[1]
Bloomberg reports that many mall-staple retailers are filing for Chapter 11 bankruptcy including Tailored Brands (Men’s Warehouse, JoS A. Bank), J. Crew, Ascena Retail Group Inc. (Ann Taylor and Lane Bryant), and Lord & Taylor, among others. These are stores that not only revolve around professional clothing, but have also taken on an unsustainable amount of debt.[2] Now that everyone has pivoted to the “Zoom shirt,” the one office-appropriate shirt or sweater employees put on before a video call for work (and immediately swap for their pajamas once the camera is off), it’s no wonder that these stores have seen serious declines in revenue.[3] Indeed, Bloomberg found that at least 25 major retailers have declared bankruptcy this year, and “as many as 25,000 stores are expected to close in the U.S. in 2020, mostly in shopping malls.”[4]
While this sounds particularly alarming, it’s important to note that other stores and industries have remained consistent (or even made significant gains) during the last six months as we’ve all necessarily shifted to online shopping. Additionally, these filings may not have the type of drastic effects that one may assume—mall owner Simon Property is looking to acquire some of these companies, so they may still stick around with a slightly different business model and chain of command.[5] The whole system hasn’t been upended, consumers have simply reprioritized based on shifting needs and companies must inevitably adapt to that.
In many ways, employees may simply need reassurances that the world isn’t ending and that there’s an observable pattern to consumer and market trends. Employees are not only their present personal and financial situations fluctuate, but the possible destabilization of their long-term investments and future plans too, which can be understandably stressful and upsetting. Plan sponsors can provide insights on recent trends to help employees become better educated on the topic, and explain how these may affect the short- and long-term economic landscape. Not only is there is a pattern, but employees may be able to use it to their advantage as well. It’s a highly emotional time, but by helping employees understanding the data, plan sponsors can give them the tools they need to make sound financial decisions.
[3] https://www.nytimes.com/2020/06/29/business/zoom-shirt.html
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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