The coronavirus shifted many retailers last year to one of two speeds, overdrive or dead stop — grocery stores boomed while some malls, locked and dark, spiraled toward a bust.

CFOs at both thriving and struggling retailers are now betting on a high-octane rush by American consumers for the rest of 2021.

The economy surged at a 6.4% annual rate during the first quarter and will likely grow 6.6% this year, according to the National Retail Federation (NRF). Last month, as vaccinations spread and businesses reopened, retail sales rocketed 37%.

Many households are flush with three federal stimulus payments, including $1,400 Washington sent just weeks ago. Consumer wallets are “spring-loaded” for a splurge, according to the NRF. It predicts that retail sales will jump as much as 8.2% in 2021 compared with last year.

“Our optimism is higher than it was at the beginning of the year,” Walmart CEO Doug McMillon said today in a statement as the company reported that comparable sales rose 6% during the quarter ended April 30. “We anticipate continued pent-up demand throughout 2021.”

As demand rises, retailing CFOs are expanding inventories, holding high levels of cash and diversifying their vendors, industry experts said. They are also using near-time data to calibrate staffing and inventory, and boosting investment in online platforms and other e-commerce assets.

The adaptability of retailing CFOs during the pandemic — and their preparations for the post-coronavirus boom — offer insights to CFOs in less-challenged industries that are getting ready for a flare-up in demand, according to Rodney Sides, vice chairman and U.S. retail and distribution leader at Deloitte.

“A lot of the retailing trends we saw before the pandemic didn’t stop, they accelerated,” he said, citing an explosion in online shopping as an example. Successful retailers “are focused on making the consumer’s life easier.”

Many retailers discovered the extraordinary value of e-commerce the hard way — through a revenue implosion.

“It’s a Tale of Two Retailers,” Sides said. Apparel, shoe, furniture and other stores selling “nonessentials” shut down while many retailers of food, drugs, hardware and other essentials prospered.

“Essential companies rock and rolled,” according to Craig Rowley, senior client partner and retail expert at Korn Ferry.

Grocery store chains “are now wondering if they’ll be able to maintain the 25% growth of last year,” he said. The chains built up online stores and expanded delivery and curb-side pick up, pushing up ecommerce from 5% of sales to more than 10%.

As many new digital shoppers snub brick-and-mortar stores, online sales among all types of retailers will rise 18% to 23% this year after a 21.9% jump in 2020, the NRF said.

‘On the edge’ of failure

When the pandemic struck, disrupting supply chains and every corner of operations, retailing CFOs built up cash levels by drawing on lines of credit, Sides said.

Bankruptcies among retailers hit a record 52 last year. The pace of failures will probably remain high in 2021, Rowley said, shrinking the U.S. per capita retail floor space of about 45-square-feet a bit closer to the roughly 10-to-15 square-foot level in Europe.

“There’s a lot of retailers on the edge,” he said, noting that several private equity firms are vetting struggling firms, attracted by the industry’s high cash generation and the prospect of pulling off a turnaround.

Inflation from red-hot growth may eventually prompt the Federal Reserve to raise the benchmark interest rate from a record low, increasing borrowing costs for many of the most stressed retailers, Sides said.

“There will certainly be impact if we see rising rates,” he said. “There will have to be some type of bifurcation” among retailers, with the larger chains prevailing by leveraging their price and volume advantages and those lacking product differentiation struggling and going under.

If recent decades are a guide, achieving a turnaround will be a heavy lift, Sides said. “In the past 20 years I have yet to see a retail company that has gone through bankruptcy and emerged to become stronger than they were.”

Click or brick?

Even though consumer demand is rapidly building, the contours of post-pandemic retailing have yet to clearly emerge.

“Usually this is a very trend-driven industry,” Rowley said, “but right now there is no trend, which makes it hard for the CFO.”

Predicting future levels of store foot traffic is especially challenging — and critical. Without an accurate forecast, a CFO may hire too many or too few staff and order too little or two much inventory.

The stakes are high. “If you buy too much you have to mark it down and you lose your profit,” Rowley said. “If you buy too little you frustrate the customer and lose sales.”

CFOs need to estimate the timing and extent of the move by workers from in-home offices back to the office buildings near stores, industry experts said. They also need to determine whether the sudden shift from in-store to online sales will grow or plateau.

Finding enough in-store staff may prove difficult. In many regions fears of the coronavirus inhibit job searches. A recent announcement by the U.S. Centers for Disease Control and Prevention that vaccinated people need not wear masks has not dispelled safety concerns among retail and other front-line workers.

“The tide is coming in and out faster than we’ve ever seen it before,” Sides said. CFO estimates for in-store and online sales will determine both the amount of inventory and the balance of inventory trucked to stores or kept in fulfillment centers.

Still, most CFOs when planning inventory are “doubling down, given that the economic forecasts are pretty consistently” to the upside, Sides said.

In order to revive foot traffic, CFOs need to reassure shoppers that stores are hazard-free, he said. “Retailers need to do a better job of communicating their safety standards.”

Companies that sooner reassure shoppers may gain market share. Even with the explosion in e-commerce, in-store transactions still account for about 86% of total retail sales.

Defense, offense

Retailing CFOs are reducing the risk of another supply chain disruption by diversifying vendors, the industry experts said. Instead of solely focusing on the lowest cost, they are building alternative sources of supply in East Asia, Latin America and other regions.

They will probably hold ample cash while keeping an eye on persistent pandemic stresses and risks such as a flaring of a coronavirus variant, the experts said.

CFOs are also investing in digital capabilities and relying more on e-commerce data and data analysis, the experts said. They have gained knowledge about the optimal size for inventory, customer needs and buying preferences and how much stock to put in stores and in fulfillment centers. Such insights help curb operating costs.

On offense, CFOs are increasing revenue through online platforms by selling advertising and featuring products from other companies, generating commissions ranging from 5% to 15%, the industry experts said.

Retailer sales of advertising is “the 2021 version of private-label credit cards from 15 years ago, when every retailer suddenly figured out that they could get points of margin to slip in the back door by promoting their own cards,” Sides said.

Some big challenges for CFOs predate the pandemic. They still need to figure out how to reverse a decline in profit margin and return on assets, Sides said.

“Did the consumer solely benefit from margin erosion, or did someone else pick up a portion of that profit to support their business model?” he said. “We’ve not yet been able to figure that out.”

During the pandemic the sudden plunge in consumption, Darwinian stress and rise in e-commerce affirmed for CFOs that the consumer is the boss, industry experts said.

“As consumers we are the power,” Sides said. “We expect retailers to meet us where we are with our demand at any point in time, with consistent execution across direct or brick-and-mortar.”

Awakening to a nightmare

Hand & Stone Massage and Facial Spa suddenly saw all its consumers gone in March 2020 as COVID-19 dealt it the revenue equivalent of a body slam.

“We woke up one morning and every one of our 450 franchise locations were required to shut down,” CFO Scott Brennan said.

Brennan assessed the company’s capital structure and liquidity, and helped franchisees maintain solvency by deferring charges for advertising, analytics and the company’s point of sale system.

Hand & Stone also helped spas apply for government aid, including the Paycheck Protection Program. In preparation for reopening, the company helped franchisees gather information on state and local health and safety regulations.

Since the outbreak of the coronavirus, Hand & Stone has opened 25 new spas and increased its customer membership by about 2%, Brennan said. It has also generated double-digit growth in most of its KPIs since the start of 2021.

Although COVID-19 fades in many regions, the spa company can hardly relax.

Hand & Stone hired employees from rivals that failed during the pandemic but still has trouble lining up qualified staff, Brennan said. “That’s always been our challenge, and it’s even more of a challenge today.”

Caught off guard by the coronavirus like virtually all CFOs, Brennan is more wary of risks and downside scenarios. “We are very cautious of a new variant, we are cautious about vaccines not working, we are cautious about anything that gets thrown at us.”

Brennan is also more confident in his company’s resilience. “After going through the pandemic, we’d be stronger, more prepared for anything,” he said. “It’s hard to imagine that risks could get worse than waking up one day and finding your business has been completely shut down.”