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Fmr. Toys“R”Us CEO on coronavirus: 'Consumer patterns are going to change'

Jerry Storch, the former CEO of HBC and Toys"R"Us joins Yahoo Finance’s Seana Smith joins to discuss how retailers are grappling with the fallout from the coronavirus.

Video Transcript

SEANA SMITH: As we have the coronavirus sending shockwaves throughout the retail sector. Now we have news out this morning that Under Armour is the latest name to pull its guidance and also temporarily layoff workers. Now earlier this week, we had Macy's, Kohl's, and Gap, all furloughing workers, more than 220,000 of them.

We all saw the jobs report out this morning, and that showed that the retail sector shed just around 46,000 jobs in the month of March alone. It's also important to point out that the data in this report was only through March 12. So it leads many to believe that the pain could be much greater here in the foreseeable future.

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So joining us now to talk more about this we have Jerry Storch, CEO of Storch Advisors and the former CEO of Toys 'R' Us. And Jerry, thanks so much for taking the time this afternoon. There's lots to talk about here about what's been going on in the retail sector, and what we have been seeing play out here because it's interesting there's a big difference between those that have a significant presence online and those that rely heavily on brick and mortar. So from your perspective, what are we seeing at this point?

JERRY STORCH: Well, there was already a major revolution going on in retail. People often spoke about the retail Apocalypse or the Armageddon in retail. Of course, nobody had any idea of what was coming here, but what's happening is that those that were already suffering, turned out to be almost negatively, uniquely positioned to take the biggest body blow from this.

So bricks and mortar retailing, particularly those that sell non-essential items like apparel, for example, mall-based retailing, department stores they're all closed. All they have left is whatever their Internet sales might be. And these were the sectors that were suffering most heavily when the economy was booming and consumer was on fire. Meanwhile, you see the mass merchants, like Target, Walmart, Costco doing pretty well in this environment because they sell essential goods we all need.

And of course, the Dollar Stores are doing well. The grocery stores are doing well. But most significantly, e-commerce companies, like Amazon, are finding this be very fertile ground for them to increase their sales, and by my calculations, they're doubling their market share at least during this period. So it's accelerating the trends that were already happening.

SEANA SMITH: And Jerry, It's interesting because we've seen a lot of these retailers that still rely heavily on brick and mortar they're being-- they're being forced to furlough-- to furlough many of their workers. How long do you think the virus will continue to weigh on the retail sector, if we had to try to put a timetable on this, at some point?

JERRY STORCH: Well, of course, no one knows how long we're going to be stuck at home the way we are now. But I would say that-- that the way to think about it is, not that we're going to return to some kind of normal, but rather that we're going to look at the world in the future in two periods, that before the coronavirus and that after the coronavirus. And the period after coronavirus, consumer patterns are going to change. Many of these bricks and mortar retailers are simply going to go out of business or be significantly downsized.

Again, they were already suffering, and this is just going to make it that much worse. We probably had two to three times the physical square footage in the US that we needed before this hit. And afterwards, these are the most leverage retailers, the ones again, that sell products you don't absolutely need to have. And we're going to see many of them simply go out of business.

So it's going to change dramatically. It doesn't mean, by the way, as per the conversation that we've been having all morning, that you've been talking about, it doesn't mean that the jobs are gone forever. But they're going to shift away from physical stores, away from apparel stores, and into logistics jobs, delivery jobs for internet retailers, and for meals consumed at home. So the world's going to change, but I have a lot of confidence, we're going to come out the other side and they could still be great employment prospects for people.

SEANA SMITH: Jerry, what kind of impact do you think this is going to have just on retailers footprint? Because last year alone, US retailers announced plans to close more than 9,300 locations. That was up 50% from 2018. What do you think that number could look like this year?

JERRY STORCH: It's going to be dramatic. I don't know how much more, and again, we have to get through the storm. I think it was, you know, Keynes, the famous economists, who said, it doesn't do much good to project that after the storm is gone the ocean's going to be flat again. You know, we know that we're going to get out the other side, but it's just going to be so different. So my belief is that we're going to see at least a doubling or tripling of the closing of bricks and mortar outlets versus what we saw in prior years.

The economy won't be as strong, even if everything else were the same, but it won't be the same. Consumers go through periods like this, whether it's this situation, whether it's a war, terrorism, after 9/11, whether it's a Great Depression and they change. They think differently about what they want, when they want it, and how they're going to consume it, and we're going to see that happen here. And these bricks and mortar retailers, that unfortunately were already suffering, are going to bear the brunt of this change.

SEANA SMITH: And Jerry, how does China play into all this? Because will they potentially lose some of their market share forever because we know that this was already starting to happen due to the tariffs before the outbreak of the virus?

JERRY STORCH: I'm sorry, you asked who will lose the share? I didn't hear what you said.

SEANA SMITH: Will it be China just in terms-- I mean, just in terms of China's role in all of this, and probably [INAUDIBLE] a player they could potentially be, or a lack thereof, I guess really going forward?

JERRY STORCH: Absolutely. It would be management malpractice for brands and retailers to be as dependent on China for sourcing as they had been in the past. I mean, that pursuit of the last 10 or 20 basis points of price savings is simply not going to be worth it. And of course, some of this production was already migrated because of the tariff pressures, but now even more of it's going to move.

And it isn't just in retailing, it's in every sector of the economy. You hear that about pharmaceutical sourcing, other key-- key products that they're going to have to move. And beyond all of that, across swaths of manufacturing in the economy, we've seen a big shift before this period towards just in time manufacturing. Not keeping buffer inventory, trying to tighten the supply chain. That's going to change. And when that changes, it's going to be both a diversification of sourcing, as well as a lot more inventory in the pipeline.

SEANA SMITH: And Jerry, real quick as a former CEO of Toys 'R' Us, also former vice chairman of Target, what would you say, what would your advice be to retail CEOs or executives at this time, just in terms of better positioning their company to come out on top after this coronavirus outbreak?

JERRY STORCH: Everyone's in a different place, and it depends on what your balance sheet looks like, and it depends of what you sell. So it's very, very different. If you can afford to, obviously, trying to keep your employees on board, trying to keep them cared for you in this period is going to pay huge rewards as you get down the line, both with your employees and with your customers.

But if you're very laborious, and you can't do that, at least you got to pay attention to your Internet business and your delivery business. And try to make sure that you can have a true all channel business. Everyone said, they wanted to move that way, but really, even the best, even the best of the best of the bricks and mortar retailers were just moving at a snail's pace on making this change, which now has to happen at a very rapid pace.

SEANA SMITH: All right, Jerry Storch. Thanks so much for joining us this afternoon.

JERRY STORCH: My pleasure.