By Paul Ziobro and Sharon Terlep
Companies from FedEx Corp. to Facebook Inc. are finding that
more business isn't always good for business when it comes to
coronavirus.
The pandemic is driving demand for retailers, consumer-products
companies and delivery firms as consumers adjust to a homebound,
stock-up lifestyle. But that demand is forcing companies to spend
more to manage the spikes as more profitable business lines dry
up.
Retailers are increasing pay for cashiers and other workers so
they can sell more toilet paper, water and other essentials, but
apparel and other items that help propel profits aren't moving.
Makers of household goods like Colgate-Palmolive Co. and Procter
& Gamble Co. are selling out quickly of cleaning products,
while higher-margin beauty supplies face slack demand.
Traffic is soaring on Facebook's social-networking platform,
though it's coming during a pullback in online advertising. The
story is similar for news organizations, which are seeing an
increase in readership but a drop in ads. Amazon.com Inc. is
getting a surge of new business as store closures move more
shopping online, but the e-commerce giant is spending hundreds of
millions of dollars to hire additional workers and pay existing
workers extra.
Delivery companies like FedEx and United Parcel Service Inc. are
experiencing a Christmas-like boom in home deliveries, while
shipments to business, which have closed by the thousands on
government orders, have deteriorated. Business-to-business
shipments are down 3% through the first three weeks of March, while
residential deliveries are up 7.2%, said ShipMatrix Inc., a
software provider that analyzes shipping data. BMO Capital Markets
estimates business-to-business shipments could decline up to 25%
for months.
Delivering to homes is generally less profitable because drivers
ferry fewer packages across many more stops.
Mid-March is normally quiet on New York's Shelter Island. On
most days, a single UPS package-car driver is able to handle all
deliveries to the year-round residents. If there are too many
stops, though, a second driver, David Carew, helps out. He takes a
late-afternoon ferry over to the island, situated between two forks
at the eastern end of Long Island, and takes on some of the
deliveries.
Last week wasn't like most days. As city dwellers flocked to
summer homes seeking refuge and space, four UPS cars traversed the
island daily, delivering food and essentials from retailers like
Costco Inc. and Target Corp., as well as items like trampolines and
home gyms to help fill the days.
"It's nothing like I've ever seen in my career," the 40-year-old
Mr. Carew said.
Some stops have vanished. The Tanger Outlets in Riverhead, N.Y.,
is closed, and drivers who tended to those stores are now deployed
elsewhere. In Manhattan, where package cars typically line up
outside office buildings, volume has slowed to a trickle.
FedEx and UPS workers could face layoffs if the flow of packages
slows further. Teamsters leaders have told UPS workers that there
could be job losses during the economic slump. Some of the FedEx
Ground division's contractors have laid off delivery drivers.
"We are flexing resources to meet changing demands on a daily
basis across the air, freight and ground parts of our network," a
UPS spokesman said.
A FedEx spokeswoman said the impact from the pandemic affects
each contractor differently, depending on the location, government
restrictions and types of businesses served. The majority handle
both commercial and residential customers, which allows them to
adjust their operations based on how the flow changes.
Procter & Gamble can't make toilet paper fast enough, and
demand for many of the company's other products -- from Dawn dish
soap to Bounty paper towels -- is surging.
Investors are taking note. Shares of P&G have fallen 12%
since Feb. 20, when markets began to tumble, while the S&P 500
has dropped twice as much in the same time. Shares of P&G
rivals Colgate Palmolive and Kimberly-Clark Corp. also have
performed far better than the overall market.
"It's nice, but a lot of it is just pantry loading," SunTrust
analyst Bill Chappell said, referring to the phenomenon of
consumers stocking up on items, only to halt purchases down the
road. Analysts anticipate makers of household staples will see a
sharp decline in sales of items that have been quickly selling out
in recent weeks.
Toilet-paper sales doubled in the four-week period that ended
March 21, compared with the same time a year ago, according to
Nielsen. Sales of paper towels and dish soap rose 80%, while
multipurpose cleaners are up 150%, and bath and shower soap sales
doubled.
Another issue for P&G: Popular staples aren't nearly as
profitable as products like its high-end SK-II skin-care line,
which is sold mainly in Asia and at airport retailers where people
aren't currently shopping. Men's razors -- also among the company's
most profitable products -- aren't getting a major sales boost, Mr.
Chappell said.
P&G could take a hit should the economy remain in a
prolonged recession, as the company's products tend to be on the
pricier side. Company executives said they have prepared for such a
scenario by ensuring they have lower-priced offerings across all
categories.
Big drugstore chains are seeing store traffic and online sales
surge. The companies sell staples and medications, have pharmacists
on site, and remain among the few businesses allowed to operate
even under the strictest lockdowns. The nation's largest pharmacy
chains have agreed to set up coronavirus testing sites in their
parking lots to be run by health officials.
Yet CVS Health Corp., the largest U.S. drugstore chain by
revenue and stores, warned investors that the epidemic would hurt
results. Much of that pain comes by way of the company's Aetna
insurance business as medical costs rise without any bump in
premiums paid by customers, the company said.
At its stores, CVS said costs have increased as more employees
work from home with pay, and the company pays cash bonuses and
offers other worker-support programs. Walgreens Boots Alliance Inc.
is offering paid time off, bonuses and other programs for
employees. Unlike CVS, Walgreens doesn't own an insurer or a
pharmacy-benefit manager.
Target said shoppers flocked to stores to buy essentials but
skipped past its higher-margin clothes and accessories. Despite
sales being up 20% in March, the company said gross margin could
fall during the rest of the quarter.
Target is having to spend more on worker pay and to clean stores
during the outbreak, which is expected to have an impact of $300
million during the latest quarter.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Sharon Terlep at
sharon.terlep@wsj.com
(END) Dow Jones Newswires
April 01, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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