In a recent report, Fich Ratings predicted that U.S. retail discretionary spending will decline 40%-50% in first-half 2020, with a slow rate of improvement expected through the summer from a current 80%-90% decline in sales if stores start to open mid-May or early June.
- Forecast sales to be down mid-to-high single digits in second-half 2020 and sales in 2021 to decline 8%-10% from 2019 levels.
- Sales declines for the secularly challenged department stores are expected to be more material on a relative basis.
- Revenue trends could improve exiting 2021, given the typical four to six quarter duration of a consumer downturn, resulting in 2022 being a growth year.
- Rating Outlooks for most of these discretionary retailers have been placed on Negative on the expectation of significantly lower EBITDA and cash flow in 2020 and the unclear shape of the recovery.
- Many retailers can weather the current challenges, given good market positions and sufficient liquidity stemming from operating and cash flow preservation initiatives.
- Some retailers can potentially emerge in stronger positions over time as weaker competitors go out of business.
