By Chip Cutter and Doug Cameron
Big U.S. companies are deciding March and April moves won't cut
it.
The fierce resurgence of Covid-19 cases and related business
shutdowns are dashing hopes of a quick recovery, prompting
businesses from airlines to restaurant chains to again shift their
strategies and staffing or ramp up previous plans to do so. They
are turning furloughs into permanent layoffs, de-emphasizing their
core businesses and downsizing production indefinitely.
Delta Air Lines Inc. curtailed plans to add more summer flights
and said it doesn't expect business flying to recover to
pre-pandemic levels. Chipotle Mexican Grill Inc. is adding staff
and changing operations to accommodate more to-go business. Vox
Media, the publisher of New York magazine and several news
websites, said it would lay off 6% of its workforce as the company
confronts a prolonged drought for its lucrative events
business.
"We cannot defy gravity and continue with the business model we
had before the pandemic," Pret A Manger Chief Executive Pano
Christou said on Friday as the sandwich chain reported an 87% drop
in U.S. sales and announced plans to close nearly 20 stores.
Executives who were bracing for a monthslong disruption are now
thinking in terms of years. Their job has changed from riding it
out to reinventing. Roles once thought core are now an
extravagance. Strategies set in the spring are obsolete.
"It's going to be a different game," said Bill George, former
CEO of medical-device company Medtronic PLC and a senior fellow at
Harvard Business School. Mr. George said many companies now need to
explore strategies they might have once deemed unthinkable, from
hospital chains embracing a long-term shift to telemedicine to
apparel makers figuring out how to market and sell their wares in
an environment where many stores don't reopen.
U.S. airlines had been signaling an easing of the broad
grounding that analysts say will lead to combined losses of $23
billion this year. Some of them had begun expanding summer flights
in anticipation of a pickup in demand. Much of that hope faded last
week.
Both Delta and United Airlines Holdings Inc. said they would
scale back their ambitions to fly more later this summer. Delta
said it would halve the number of extra flights it adds in August
to 500 and that capacity in the September quarter would at best be
25% of the level a year ago.
"We're seeing stalling demand growth at this point," Delta Chief
Executive Ed Bastian said in an interview with The Wall Street
Journal. The company opened the airline earnings-reporting season
with a loss that Mr. Bastian called a staggering illustration of
the pandemic's impact, and he told analysts he didn't expect the
level of business flying to ever recover to its pre-pandemic level
as companies rethink the need for putting employees on the road.
Leisure traffic could take two years or more to recover, assuming a
vaccine or treatment becomes widely available, he said.
Meanwhile, American Airlines Group Inc. told 25,000 workers that
their jobs are at risk after federal aid expires Oct. 1 and United
said it is exploring shedding 36,000 employees, or nearly half of
its U.S. workforce, as both airlines said they expect it to take
years for demand to approach normal levels.
There are some signs of strength in consumer spending. The
Commerce Department on Thursday said U.S. retail sales -- a measure
of purchases at stores, at restaurants and online -- increased 7.5%
in June, driven by a pickup in sales at motor-vehicle dealers,
furniture, clothing and electronic stores. Spending has also been
buoyed by enhanced unemployment benefits that are set to expire at
the end of the month.
Still, some economists say the data obscure the reality on the
ground, where consumers are increasingly fearful of the economic
impact of a new surge of Covid-19 cases in much of the U.S.
"The risk of a relapse in demand is rising," said Gregory Daco,
an economist at Oxford Economics. Mr. Daco's measure of states'
recovery finds the economic rebound has slowed week-over-week in 14
states and declined in 15, with confirmed infections rising in 39
states that together account for 90% of the U.S. economy.
The U.S. posted a single-day record of more than 77,000 new
cases on Thursday and its case count was more than 3.6 million as
of Friday, a little over a week after reaching 3 million. The
accelerating spread has derailed what many businesses had hoped
would be a smooth transition to normal levels of activity.
Executives are increasingly resigned to the idea that a vaccine is
the only path back to normal.
"The real endpoint is the biology," Gary Burnison, CEO of
executive-search firm Korn Ferry, said on an earnings call this
month.
California halted indoor activities at bars, restaurants, salons
and gyms -- many of which were already struggling to recover from
earlier shelter-in-place orders -- less than a month after allowing
them to reopen. School districts in a growing number of cities,
from Houston to San Francisco, said remote-only learning would
continue this fall, another blow to businesses hoping to get
working parents back in the office. Job site Indeed said it won't
require employees to return to its offices before July 2021.
Chipotle opened its first drive-through lane two years ago. On
Wednesday, the burrito chain said it expected at least 60% of new
locations would have them, adding that it had hired 8,000 people
since May in part to staff reformatted stores with windows where
customers who drive can pick up orders placed in advance
online.
Vox Media, the publisher of New York magazine, the Verge and SB
Nation, furloughed about 100 employees in the spring after it
suffered sharp revenue declines as the pandemic drove down
advertising spending and caused it to stop producing lucrative
events.
On Wednesday it said it would lay off about 70 employees, many
of them from the events business, in an acknowledgment that it
doesn't expect parts of the business to bounce back. Also last
week, the Guardian announced the British newspaper would reduce its
staff by 12%, or 180 people, with cuts to the newsroom and business
side of its operation.
"It's becoming increasingly clear that the second half of the
year will not rebound anywhere near our pre-Covid forecasts," Vox
Media Chief Executive Jim Bankoff wrote in a memo to staff.
"Furthermore, as cases rise tragically across the country and many
of our elected leaders avoid decisive action, we have very limited
visibility into the timing or strength of a recovery."
--Micah Maidenberg contributed to this article.
Write to Chip Cutter at chip.cutter@wsj.com and Doug Cameron at
doug.cameron@wsj.com
(END) Dow Jones Newswires
July 19, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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