How Will The Federal Government Shutdown Affect Retailers?

By Sam Lewis

Industry experts believe the cessation will have more bark than bite

The retail industry might not be hit very hard by the federal government’s work stoppage; in fact it couldn’t have been timed more perfect. Currently, the industry is amidst a lull, the back-to-school rush has quieted, and despite the best efforts of some retailers, the holiday shopping season is still many weeks away from being in full swing.

However, the shutdown has to be short. Luckily, history is dictating that will most likely be the case. Since 1976, the U.S. government has engaged in 17 shutdowns, most of which have lasted longer than a few days. Only a shutdown lasting longer than a week would significantly impact the economy. “I would expect to see a dip in food and discretionary spending categories, but it will be small and hopefully short lived,” says co-leader of retail practice at AlixPartners, Joel Bines. While the furlough is an enormous deal to the more than quarter million government workers it is affecting, it is a small portion of the country’s consumer economy.

The water becomes murkier for retailers as the shutdown lengthens. A shutdown longer than one week could present more uncertainty in a slow-to-recover retail climate. “The fact that this is happening in October is better, as long as it doesn’t drag on for a while,” Bines says.

The latest quarterly statements from retailers like Walmart and Macy’s have reduced annual profit forecasts due to subpar sales. Uncertainty becomes a bigger issue when looking to the holiday shopping season. Though the season is predicted to be better than last year, the measure is only up slightly. A lengthy government furlough would almost certainly bring that projection down. 

The silver lining of the government shutdown cloud is it will most likely not last long. A brief shutdown, ending long before the true start of the holiday shopping season, Black Friday, would make very little impact on retail sales. In fact, late in 2012 the U.S. government faced a similar situation with a series of spending cuts and tax increases known as the fiscal cliff. This event threatened to affect holiday spending as well as throw the economy into chaos. However, little came from it, at least at the corporate level, as this Huffington Post article explains.

The federal government is again expected to reach the “debt ceiling” in mid-October, rather than December this year. The consequence of this will be the likely development of “fiscal cliff 2.0.” We will see how this plays out in the coming months. But, much like the fiscal cliff of 2012, the federal government shutdown of 2013 should have little effect on the retail industry, assuming it’s as short as it’s expected to be.