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The suburbs are rebounding better than cities

Wednesday, January 13, 2021

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The uneven suburban and urban economic rebounds, as shown by Shake Shack.

A major feature of the COVID-19 economic shock is that it hasn’t been felt equally.

White collar workers who were able to shift from in-office work to working from home almost overnight have fared generally better.

Industries that relied on in-person interaction were hit harder and have been slower to come back. Restaurants and bars have been hit hardest by the pandemic.

These diverging fortunes are why the consensus view on this recession and its recovery is that it is “K-shaped.”

We’ve written previously about how even within industries most severely impacted by the pandemic there are clear winners and losers. In the restaurant industry, for example, national chains have fared — and are likely to continue faring — better than smaller, mom and pop restaurants.

And then, as Shake Shack (SHAK) outlined on Tuesday, there are even diverging fortunes within a single company’s portfolio. And in the case of Shake Shack, the spread between its leading and lagging markets shows us how suburbs have generally bounced back more strongly than cities some nine months into the pandemic.

“We are pleased to see trends in the fourth quarter 2020 continue to improve with Average Weekly Sales of $62,000 compared to $58,000 in the third quarter 2020, and $45,000 in the second quarter 2020,” Shake Shack CEO Randy Garutti said Tuesday ahead of a presentation at the ICR Conference.

“Also in the fourth quarter 2020, Same-Shack sales declined 17.4% compared to down 31.7% in the third quarter of 2020, and down 49.0% in the second quarter of 2020. Importantly, same-Shack sales at our suburban locations were approximately flat in the fourth quarter 2020 compared to the prior year despite what remains a challenging operating environment due to COVID-19.” (Emphasis added.)

LONG BEACH, CA - NOVEMBER 06: Shake Shack held family and friends preview of its new restaurant in the 2nd & PCH shopping center in Long Beach on Wednesday, November 6, 2019. (Photo by Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images)
Shake Shack held family and friends preview of its new restaurant in the 2nd & PCH shopping center in Long Beach on Wednesday, November 6, 2019. (Photo by Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images)

Shake Shack shares rallied on Tuesday, surging 12%, as the company’s sequential sales growth continued and its overall sales decline came in better than feared. According to data from FactSet, investors were anticipating a 19.5% drop in fourth quarter same-Shack sales, a decline more than 2 percentage points higher than reported.

This flat fourth quarter in Shake Shack’s suburban markets, however stands in stark contrast to the fortunes of its outposts in urban markets.

Same-Shack sales in Manhattan were off 49% in the fourth quarter compared to last year, while same-Shack sales at all urban locations fell 31% in the fourth quarter. Both these measures, however, represented sequential improvements over the third quarter.

But these numbers show how cities — which depend on a steady and reliable flow of people in and out — continue to lag in this recovery.

Jed Kolko, chief economist at Indeed, flagged on Friday how job losses seen in December were concentrated in sectors with an inability to work from home.

A reminder that when we hear about economic impacts from a resurgence in COVID-19 cases, the pain is being felt in the same places by the same people in the same sectors that were hit hardest back in the spring.

By Myles Udland is a reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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