Omicron surge compounds retailers’ biggest headaches: Worker shortages and supply chain woes

Slashing store hours, temporarily shuttering locations and sending apology letters to customers for long lines and delayed appointments.

These are the some of the unusual steps that retailers and restaurants are taking as Covid cases spike across the country, fueled by the fast-spreading omicron variant.

Companies are no longer worried about state and local governments shutting businesses down.

Instead, the businesses are coping with a shortage of workers as people call out sick, get exposed to the virus or scramble to find childcare. And the threat of more supply chain woes looms as the highly contagious variant spread across the globe.

“There is no question that staffing is definitely a big issue this time around,” said Stephanie Martz, the chief administrative officer and general counsel of the National Retail Federation. “It was maybe less measurable when we were at a point in the pandemic when so much was closed and everything was so scaled down.”

“I don’t know if I would go as far as to say that we have an unprecedented number not being able to work, but it’s high,” she said. “It’s really high.”

Covid cases have surged. The U.S. is reporting a seven-day average of about 600,000 daily new cases, an all-time high and up 72% from the week prior, according to a CNBC analysis of data compiled by Johns Hopkins University through Thursday.

A soaring number of sick, exposed or overworked employees has caused retailers and restaurants to take unusual steps as their existing labor problems worsen. Macy’s cut store hours at locations across the country for the rest of this month. Walmart temporarily closed nearly 60 stores in December in coronavirus hot spots. And other employers, including Starbucks, Chipotle and Nike have been forced to close some of their doors as they simply don’t have enough people to keep them open.

Walgreens sent an apology email to customers this week, acknowledging customer complaints about long checkout lines, out-of-stock items and delays for Covid vaccine or test appointments. In the note, the company’s leaders mentioned the many tasks that pharmacy staff are juggling — namely, giving over 55 million Covid vaccines and more than 23 million Covid tests, while still filling over a billion prescriptions annually.

“There’s been a high level of stress in the system,” Walgreens Chief Financial Officer James Kehoe said Thursday on a company earnings call. He said the company is going to spend roughly $120 million more on labor to help its stretched-thin staff.

For short-handed retailers, reducing hours has become one of the first logical moves to make, said Craig Rowley, a senior client partner at Korn Ferry and head of the firm’s retail practice. Some stores are trimming back on weekdays when only a small percentage of sales take place compared with busier weekends, he said.

He said pandemic-related changes may prompt retailers to permanently rethink store hours, particularly as more sales move online.

“The labor shortages from [Covid] goes out to almost any customer-facing business,” said Rowley. “Retailers and restaurants are facing this in spades.”

Morgan Harris owns Green Bambino, a Oklahoma City store that sells baby supplies including onesies, diapers and toys. She said she has had to toss out one of the cardinal rules of retail as she operates with a staff of four people – less than half the 10 to 15 person staff she expected to have. The store has had to switch its schedule. It is now open five days a week instead of seven.

Now, she sees some corporate giants doing the same as they get hit by the “Great Resignation” and squeezed further by the omicron wave.

“It used to be in retail you never changed your hours,” she said. “That’s out the window.”

Some companies have gotten better at using technology to notify customers about staffing shortages or store closures. For example, an understaffed Chipotle location can turn off digital orders coming from its app and focus on in-store transactions instead while nearby restaurants fulfill delivery and online orders.

Rowley said the good news is that retailers and restaurant chains have at least survived the holiday rush. “Staffing levels aren’t what they were pre-Christmas, so companies do have that advantage,” he said.

Retailers may even be able to ask temporary holiday hires to stick around and work additional hours into the new year, he added.

Harris, however, said she worries Green Bambino may have to cope with a leaner staff, even as its sales jump. Its annual revenue grew to nearly $900,000 last year — 23% higher than 2020 and 14% higher than pre-pandemic sales in 2019.

Job applications have slowed to a trickle, despite enlisting a recruiter’s help. And she said the omicron wave hasn’t yet hit the region — which could mean more employees calling out sick.

“I would anticipate our staff shrinks further, not gets bigger,” she said. “I have very little hope that all of the sudden we are going to find all of these amazing people and bring them on.”

Plus, she said, the latest wave of the pandemic could further delay the return to steady shipments of popular baby items, such as car seats and strollers. The store is getting out of the furniture business due to backlogged shipping times and higher freight costs. It stopped accepting deposits for many items, since it could not predict if — or when — those big-ticket items would come back into stock.

“I don’t feel like I’m reinventing the business every two weeks like I was in 2020, but we have no idea what businesses we will have to run post-pandemic,” she said. “The uncertainty is here to stay several more months, if not longer.”

Shoppers, on the other hand, have kept spending — even if some browse online instead of in aisles or switch to curbside pickup or home deliveries, which have become part of their muscle memory.

Avoidance of some public places has crept up slightly again, according to a survey by Coresight Research of more than 500 U.S. consumers on Dec. 27 compared with prior weeks. A rising number of consumers said they are pulling back on activities like international travel and use of public transit. Nearly 66% of respondents said they are avoiding any public place — up from 62% when the survey was conducted Dec. 13.

About 38% of respondents said they were avoiding shopping centers and malls and about 33% said they were avoiding restaurants, bars and coffee shops versus 32% and 30%, respectively, two weeks prior.

However, the company’s survey did not show any significant change in what consumers were buying or how much they were spending.

The restaurant industry may be entering yet another downturn. Restaurant analytics firm Black Box Intelligence found that restaurant sales declined for the first time since mid-March in the week ended Dec. 26, but chalked up the reversal in large part to Christmas falling on a weekend this year, as well as the omicron surge.

OpenTable data shows that seated diners from online, phone and walk-in reservations are down in the United States in the first week of 2022 compared with pre-pandemic levels, but consumers may be switching to takeout or trying to stick to New Year’s resolutions.

If that plays out, it could mean Americans spend on stuff instead of services. Holiday sales were on track to hit a record high of up to 11.5%, according to the National Retail Federation. (The final numbers won’t be released until late next week.)

The retail trade group’s chief economist, Jack Kleinhenz, said consumers’ heightened appetite for goods and reluctance to spend on trips, dining out and other types of spending could fuel inflation.

John Mercer, Coresight Research’s head of research, said for the most part, the shopper has appeared to “roll their eyes, take a deep breath and sigh and then kind of carry on as much as they can as normal.”

“It’s quite different this time,” he said. “Consumers have been double jabbed, triple jabbed. They have been through this before. It’s really obvious that in other countries, omicron in general is much weaker.”

Nearly three in four Americans are fully vaccinated, as of Thursday, according to the Centers for Disease Control and Prevention. So far, 73 million people have received a booster shot — representing roughly 22% of the U.S. population. And on Wednesday, the CDC greenlighted Pfizer and BioNTech‘s Covid booster shots for children ages 12 to 15.

And there is some evidence that omicron is milder than previous variants, according to World Health Organization officials.

That may be starting to change the outlook for Americans who are getting sick. The country is reporting an average of about 1,250 deaths per day, Hopkins data shows, well below the record numbers seen following last year’s holiday season when the daily average held above 3,000 for about a month starting in January 2021. The death toll tends to lag rises in case counts and hospitalizations, however.

NRF’s Martz said both retailers and consumers have a better grasp on coronavirus. That’s led to a heavier emphasis on tools like booster shots, at-home Covid tests and better masks instead of wiping down counters or installing plexiglas screens.

One way the industry is pressing forward is by throwing its annual conference in person. NRF’s Big Show will be held next week in New York City at the Javits Center — previously a mega-center for Covid vaccines and potentially the source of the first known instance of omicron spreading within the United States.

Martz acknowledged that the conference will look different than pre-pandemic. All attendees must wear a mask and show proof of vaccination. Booths on the showroom floor may have less staffing. And the trade group will hand out at-home Covid tests and host a mobile testing unit.

As many as 20,000 attendees are expected — roughly half of the attendance in 2019.

Still, she said, it feels right to press forward as frontline retail employees continue to go to work in person day after day.

“We feel this is now an appropriate time to get back to together in some fashion,” she said, even if “it won’t look like our shows have in the past.”

CNBC’s Nate Rattner, Lauren Thomas, and Amelia Lucas contributed to this report.