Delta variant threatens great US Labor Day comeback

Financial Times

By Andrew Edgecliffe-Johnson

July 23, 2021

Virus strain and transport problems could thwart companies who want staff back at their desks

Labor Day has long provided a unique punctuation mark in the US calendar, branding the first Monday of September as the unofficial end of summer. After that day, crowded beaches, national parks and Hamptons restaurants fall quiet as children return to school and adults get back to business.

But the federal holiday has assumed outsized importance this year. Falling on September 6, 18 months to the week from the World Health Organization declaring Covid-19 a global pandemic, Labor Day 2021 is being held up by many companies as the moment when employees who have worked from home for most of that time should start showing up in the office.

That expectation, bolstered by rising vaccination rates in the country’s largest commercial hubs, is lifting the hopes of downtown office owners, retailers specialising in dressier clothing and providers of services from corporate catering to stomach-tightening and skin-smoothing products valued by those worried about how they will look in person, rather than in a Zoom window.

At the same time, analysts caution, refilling the country’s central business districts will also require such a step change in activity that the looming deadline is raising questions about whether some cities’ commuter infrastructure can adapt in time.

New York’s transit agency has cut 6 per cent of its staff since the start of the pandemic, leaving it unable to provide a full service. That has caused delays even though the subway system was still carrying 55 per cent fewer people than usual this week.

The rising cases of the Covid-19 Delta variant are meanwhile cooling some employers’ enthusiasm for getting their people back together. Apple told staff on Monday that they should delay their return to its offices from early September by at least a month, and cautioned that the date could move further back depending on the spread of the virus.

A natural transition

“It’s not like something magical happens on September 7,” Michelle Gass, chief executive of Kohl’s, told the Financial Times. “It was more about giving people clarity and having this natural transition with kids [returning to] school.”

But the department store chain is far from alone in expecting its office staff to return by the day after the public holiday. James Gorman, Morgan Stanley chief executive, said last month that he would be “very disappointed if people haven’t found their way into the office” by Labor Day, later clarifying that the bank would still be flexible about how often it expected people to be there.

He was echoing Brian Moynihan, the Bank of America chief executive who said in late May that his bank’s goal was “to effectively be back to where we were in January of 2020” by early September.

“We are hearing more and more across all markets that Labor Day is the target,” said Paul Gaines, chief asset officer at Accesso, a property company with office buildings from Houston to Chicago. “It seems the expectation is that the majority of workers will return to the office at least part-time.”

Albert Behler, chair and chief executive of Paramount Group, most of whose properties are in New York and San Francisco, noted that the majority of tenants were planning a phased return to the office. But with vaccination rates above the national average in both cities, “this gives our tenants and us more optimism for a meaningful and safe return to office after September”.

Paramount’s offices have been filling up over the summer, but remain “much below pre-pandemic levels”, said Behler, who said it was nearly impossible to predict where they would be in September.

Others have made such predictions, however. A survey by the Partnership for New York City, which represents many of the city’s largest employers, found last month that its members expected 62 per cent of their office workers to be back by the end of September, even though only 12 per cent were at their desks at the end of May.

“There’s a big step change that needs to happen for sure; in New York we are less than half way there,” said Zach Amsel, director of insights for Earnest Research, a data analytics company which uses foot traffic at downtown Starbucks locations as a proxy for how fast central business districts are bouncing back.

Earnest’s data, gleaned from mobile devices, shows stark geographic differences, however. While Starbucks locations near offices in downtown Miami and Los Angeles were 25 to 45 per cent less busy in May than before the pandemic, those around New York commuter hubs like Penn Station and Grand Central Station were still down 70 to 75 per cent.

More recent data from Kastle Systems, using swipes from the access systems it operates in 2,600 buildings, suggests that office occupancy in the 10 largest US metro areas averaged 34.5 per cent this week. Law firms were bucking the trend, however, with a rebound in occupancy since the July 4 holiday taking their average to 55.7 per cent.

Back-to-school meets back-to-work

Labor Day is always an important date in the retail calendar, a deadline by which stores hope to offload piles of children’s jeans, sweatshirts and backpack-filling supplies for the back-to-school season.

But it would be a “catalytic” moment this year, Joseph Scalzo, chief executive of the Simply Good Foods Company, told investors in the snacks company earlier this month. Shelley Haus, Ulta Beauty’s chief marketing officer, similarly told analysts to expect “a back to school [season] like no other”.

Those expectations have been fuelled by the Biden administration sending the first child tax credit cheques to 35m families earlier this month. “Consumers are going to have more money in their pockets that they didn’t expect. That’s going to propel spending,” Amsel at Earnest Research predicted.

But, unlike previous years, retailers expect this year’s back-to-school jump to coincide with parents restocking their wardrobes too. “We’re excited about the apparel boom that’s coming,” said Gass from Kohl’s, asking: “How many T-shirts do you need to be on a Zoom call?”

Google Trends data offer one answer to that rhetorical question, said Nick Mazing, director of research at data provider Sentieo. Searches for “dress shirts”, the kind of collared shirt still expected in many workplaces, have returned to 2019 levels as Labor day approaches.

Interest is even stronger in Botox wrinkle-smoothing jabs, Invisalign teeth-straightening kits and “tummy tuck” procedures, Google’s data show.

After months of interacting with colleagues only through a screen, Mazing concluded, “people are concerned about how they look in real life”.