Dive Brief:
- Retail analysts with the ratings agency Moody's have raised their expectations for retail's performance, changing their industry outlook from negative to stable, according to a report emailed to Retail Dive this week.
- Now projecting 15% decline in operating profits, the analysts softened their estimates for the collective hit to retailers this year, after previously forecasting a drop of up to 30%. They expect operating profit to improve around 20% next year.
- For both years, the analysts estimate sales growth of 3%-5%. "Despite this strong turnaround, we have stopped short of going positive because coronavirus outbreaks continue, the economy is in recession and consumers remain stressed," the analysts added.
Dive Insight:
It's difficult to overstate the collective effect that the COVID-19 pandemic has had on retail. Mass closures, wary consumers, stay-at-home orders and social distancing — the pandemic landed right at the industry's heart.
With revenue to physical stores all but cut off to a huge cross section of the industry for weeks this spring, even relatively healthy retailers had to scramble to raise enough liquidity to keep the lights on, and many lost financial ground.
Unemployment, recession and earlier fears of a financial crisis deepened the troubles for retailers, with a shadow over consumers and difficulties for companies trying to refinance debt or cut acquisition deals.
In that context, "stability" would bring relief to many. What's more, the hardest hit in the industry, including department stores and apparel retailers, are set for a strong rebound in 2021, according to Moody's. Among others, they listed Macy's, Nordstrom, Kohl's, Gap, and off-pricers TJX Cos. and Ross.
And some segments of retail are already doing well — indeed, have gotten a bump from how and what shoppers have bought during the pandemic. In September, sales were up 23.8% year over year for online retailers, 14.4% for recreational goods retailers, 19.1% for building and garden retailers and 4.6% for furniture retailers, according to U.S. Census Bureau data compiled by Moody's.
The analysts weren't the only ones sounding a positive note on the industry this week. Retail analysts with Cowen said that consumer confidence had its second biggest month-over-month gain since 2009 in September. They also noted holiday forecasts calling for modest year-over-year sales growth.
Moreover, those that survived the closure period and recent years of turbulence in apparel and specialty retail are poised to pick up share from store closures and bankruptcies, according to the Cowen team. Those closures suggest "$5B to $10B in lost store sales across men's, ladies, kids apparel/footwear and another $1.5B-$2B in home related categories," the analysts said.
