Even with the US economy expected to reopen in coming months, investors should be prepared for this holiday shopping season to be filled with lumps of coal.
In a best-case scenario, retailers who shuttered their locations to slow the spread of the coronavirus would start operating them again in May and June. But many chains in hard-hit discretionary categories, like apparel, would still see sales fall 5% to 10% during the holiday shopping season from a year ago, according to Fitch, the ratings company.
The reasons are many. Unemployment will remain high because lots of furloughed workers won’t be brought back as companies cut costs or don’t reopen. A downturn in consumer psychology will boost an already-high savings rate. And the risk of a second outbreak of the virus in the fall will hang over everything.
“We’re assuming the customer is pretty slow to come back to all these stores,” said David Silverman, an analyst for Fitch, which recently downgraded chains such as Victoria’s Secret owner L Brands Inc. “Things might not be completely fine until there is a vaccine, and that could take a year or more.”
There’s also a big question over whether chains will have enough goods in stock for Christmas. Virus-triggered shutdowns upended supply chains and weakened the industry’s finances. Retailers also upset vendors after canceling orders and will now need them to ship again… Bloomberg
