May retail market: historic fall in sales in the United States in April; 9 companies go bankrupt

U.S. retail sales fell a record 16.4% in April from a month earlier as the coronavirus pandemic kept consumers at home. However, experts say the drop is probably the worst of the worst, even as the sector faces an uncertain recovery.

“This report was always going to be terrible, but it likely marks the ground, given the phased reopening underway or soon underway in 42 states,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note.

Meanwhile, as retail layoffs continued to rise, the pandemic unleashed a wave of industry-wide casualties as nine businesses went bankrupt from late April to mid-May, according to an S&P analysis. Global Market Intelligence. This includes high-profile filings by physical retailers J.Crew Group Inc., Stage Stores Inc. and Neiman Marcus Group Inc.

Retail sales

The decline in U.S. retail and food services sales in April marked the largest monthly decline on record since the U.S. Commerce Department began tracking data in 1992.

Sales totaled a seasonally adjusted $403.95 billion during the month, according to data released May 15 by the US Census Bureau.

“With social distancing, lockdowns and travel measures in effect in most states throughout April, the report is the first in the series to capture the full impact on the retail sector. “said Karl Schamotta, chief market strategist at Cambridge Global Payments. , said.

READ MORE: Sign up for our weekly coronavirus newsletter hereand read our latest crisis coverage here.

High unemployment, falling incomes and low consumer confidence will continue to weigh on consumer spending, Lydia Boussour, senior US economist at Oxford Economics, said in a note.

“While we believe the worst of the consumer downturn is likely behind us, the gradual easing of lockdowns and the lingering fear of viruses will result in a slow release of the purse strings,” Boussour said. “As the economy gradually reopens and activity slowly picks up, we expect only a modest rebound in the third quarter followed by a more pronounced rebound in the final quarter of the year.”

Pantheon Macroeconomics’ Shepherdson predicts a modest increase in sales in May and then a larger rise in June, but warned that sales will remain “well below” their pre-coronavirus peak.

“While April will most likely prove to be the nadir for U.S. retail sales, we do not expect a significant rebound in sales in the near term due to the significant dislocation in the U.S. labor market and the outlook for growth. revenues clearly diminished in the near future,” Joseph Brusuelas, chief economist at RSM US LLP said.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note that it will be important to see how things improve in the months ahead. “[I]It will be months before we can tell what the “new normal” will look like. »

Clothing and clothing accessories stores posted a 78.8% drop in sales in April from the previous month to $2.37 billion. Sales at electronics and appliance stores fell 60.6% month over month to $2.83 billion. Sales of furniture and home furnishings fell 58.7% from the previous month to $3.30 billion.

Food services and drinking places posted a monthly decline of 29.5% to $32.36 billion.

Meanwhile, non-store retailers were the only bright spot during the month, as sales in the category rose 8.4% to $78.38 billion.

The consumer price index, or CPI, in April recorded its worst monthly decline since December 2008. Consumer prices fell 0.8% in the United States in April, according to a monthly report published on 12 May by the US Bureau of Labor Statistics.

SNL Picture

Gasoline prices fell 20.6% in April, while energy prices overall fell 10.1%. The core CPI, which excludes food and energy prices, fell 0.4%.

At the same time, food prices rose 1.5% in April after rising 0.3% in March.

Clothing prices fell 4.7% in April from the previous month. Prices for men’s and boys’ clothing fell 4.6% month-over-month, while prices for women’s and girls’ clothing fell 5.4%.

Bankruptcy

Nine U.S. retail companies covered by Market Intelligence filed for bankruptcy in late April and early May, bringing the total number of bankruptcies for 2020 to 23. circle JC Penney Co. Inc.

The bankruptcy count includes businesses with the primary industry classification of retail, household and personal products, or consumer durables and apparel, and the secondary classification of retail. Public companies included in the list of companies with public debt must have at least $2 million in assets or liabilities at the time of filing for bankruptcy. By comparison, private companies must include at least $10 million.

SNL picture

On May 10, Texas-based department store operator Stage Stores filed for Chapter 11 bankruptcy after “exhausting all possible alternatives” to save its business. The company said it would solicit offers for the sale of the business or any of its assets as it begins a phased downsizing. Stage Stores said it would not shut down operations in some locations if it secured a viable going concern offer.

Luxury retailer Neiman Marcus filed for bankruptcy on May 7. The company that filed in Houston bankruptcy court said it secured $675 million in debtor-in-possession financing as well as exit financing worth $750 million from the company’s creditors .

J. Crew Private Company, a subsidiary of Chinos Holdings Inc., filed for Chapter 11 bankruptcy in the United States on May 4 after struggling with mounting debt in recent years. The clothing retailer said it reached an agreement with its lenders to convert about $1.65 billion of debt into equity. It also secured $400 million in debtor-in-possession financing and committed to finance the exit provided by its existing lenders.

John Varvatos Enterprises Inc., which sells men’s fashion products, filed for voluntary Chapter 11 reorganization on May 6. The company has listed assets of $10-50 million and liabilities of $100-500 million.

J. Hilburn Inc. and Rubie’s Costume Co. Inc. are other retailers that have filed for Chapter 11 bankruptcy. Clothing importer CD II Fashions LLC and NBL Textiles Inc. have filed petitions involuntary against them. RTSUSA Corp. filed for voluntary Chapter 7 liquidation on April 29.

Use

The retail sector lost 2.1 million jobs in April, down 13.48% month-over-month to 13.5 million, according to a monthly report from the states Bureau of Labor Statistics. -United.

SNL picture

Clothing and clothing accessories stores led the decline with a loss of 739,600 jobs, a drop of 58.25%.

Employment at furniture and home furnishings retailers fell by 209,000, or 45.24%, to 253,000 for the month. Sporting goods, hobby, book and music stores lost 184,900 jobs, down 34.5% to 351,000 jobs.

Employment at miscellaneous store retailers fell by 264,200 jobs, while vehicle and parts dealers lost 344,700 jobs in April.

Vulnerability

In May, Market Intelligence identified 15 public retailers for its list of vulnerabilities, which now includes companies with a primary sector classification of retail, household and personal products, or consumer durables and apparel, and a secondary retail classification.

The one-year PD score for these companies ranged from 31.2% to 12.6%, and their corresponding implied credit scores ranged from “ccc-” to “ccc+”.

SNL picture

Merion Inc., which provides health supplements and personal care products, tops the list with a probability of default of 31.2%, followed by precious metals retailer Sunstock Inc. with a score of 27.6%. .

SNL picture

S&P Global’s Fundamental Probability of Default Model provides a fundamental view of credit risk for businesses by assessing both business risk – including country risk, sector risk, macroeconomic risk, business competitiveness and business management – as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more in-depth look at the model, see the PD Model Fundamentals – Public Corporates white paper.

Comments are closed.