The coronavirus pandemic has taken hold, and retail is among the sectors bearing the brunt of the economic impact: Stores have been closed, workers furloughed, executive salaries slashed — all in an effort to preserve cash and keep businesses alive.
But such measures may not be enough to stymie the impact of the outbreak in the United States. According to a new report from Fitch Ratings, discretionary spending is already “adversely affected,” and the increased likelihood of a downturn could extend well into 2021.
The agency projected that discretionary retail sales could decline up to 50% in the first half of 2020, with a slow rate of improvement through the summer if stores begin reopening in mid-May or early June. It also forecasted sales to be down mid- to high single digits in the second half of the year, while sales in 2021 could plunge 8% to 10% from 2019 levels.
The predictions come a week after Fitch downgraded a number of department store chains and specialty retailers, with four industry players — Macy’s, Kate Spade parent Tapestry, Jimmy Choo owner Capri and Dillard’s — lowered to non-investment grade.
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To preserve cash flow, some fashion and footwear companies have taken several cost-reduction initiatives, including pulling back on inventory, tapping their credit lines and suspending share buybacks. Still, Fitch analysts anticipated that numerous uncertainties — from the length of the crisis to unemployment and income trends post-pandemic — could weigh down the sector, particularly already-beleaguered businesses such as JCPenney and J.Crew.
It remains to be seen whether consumers will be able to return to pre-coronavirus shopping habits following months of disruption and panic-buying. Many retailers have thrown their resources behind e-commerce as brick-and-mortar closures extend through the end of the month — although a number have expressed worries that online gains won’t be enough to replace physical store sales.
But not all is lost: Revenue trends, added the agency, could improve upon exiting 2021, “given the typical four- to six-quarter duration of a consumer downturn,” and could result in 2022 being a “growth year.” Retailers with “good market positions and sufficient liquidity” will be able to weather economic challenges, said Fitch, and perhaps even emerge “in stronger positions over time as weaker competitors go out of business.”
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