• Retail Dive

Retail sales could remain down by double digits through 2021, Fitch says

By Ben Unglesbee on April 9, 2020



Dive Brief:

  • Against a backdrop of mass store closures and stay-at-home orders for much of the U.S., Fitch Ratings estimates discretionary retail spending to decline by up to 50% for the first half of 2020, according to an emailed report.

  • With a consumer downturn increasingly likely, Fitch estimates sales to remain in decline during the second-half of 2020, and for sales next year to be down as much as 10% from 2019 levels.

  • While Fitch analysts expect many retailers can weather the current disruption caused by the COVID-19 pandemic, they listed some companies that are more vulnerable given their respective financial and competitive positions. Among them are J.C. Penney, GNC, J. Crew, Land's End, Tailored Brands, Ascena and Party City.


Dive Insight:

Fitch's report highlights what is becoming a common, if painful, assumption about the retail market: It's probably going to remain depressed long after stores re-open. 


The estimates in the report provide a gauge, but there is tremendous uncertainty hanging over discretionary retail. For one, nobody can know when consumers will feel safe returning to stores and other public areas even after authorities give the OK. Adding to the uncertainty is a looming recession, which some analysts think the U.S. has already entered, and mass layoffs that are happening right now. 


All of that will likely dampen consumer spending yet more. And who knows if consumers will ever quite return to their pre-pandemic habits after months of mass disruption and anxiety. 


Fitch analysts Monica Aggarwal, David Silverman and Carla Norfleet Taylor expect many of the retailers they cover to weather this period given their market positions and liquidity from the actions they are taking right now. Retailers across the board have been freeing up cash by tapping their credit lines, furloughing staff, cutting costs, pulling back on planned investments and, in many cases, skipping rent and stretching vendor payments


Some retailers could even be made stronger when all this is over, as weaker competitors drop off, the Fitch analysts said. But they also called out "notable exceptions," many of which went into 2020 in distress, at a time when the overall economy was in good shape. They list "market share donor" J.C. Penney, "given our expectation that material cash burn in 2020 will significantly challenge its liquidity position." 


Also on the list is GNC, which has said it probably can't generate the cash to pay its debt; J. Crew and Lands' End, which the analysts note have "sizable" debt maturities looming in 2021; and Tailored Brands, Ascena and Party City, all of which the Fitch analysts said might have a tough time managing 2022 debt maturities given "[p]rotracted weakness in sales and capital market conditions."


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