Credit risks to the global retail sector have increased dramatically as a result of the coronavirus pandemic, with segments such as casual dining and mall-based stores particularly vulnerable, according to S&P Global Ratings.
The rating agency said in a report that it expects to take rating actions “across the spectrum” of the retail industry as the virus eats into consumer demand and social distancing keeps people away from restaurants.
In the short term, debt issuers in the hardest-hit subsectors of retail and restaurants could face year-over-year sales declines of more than 50% and the full-year impact to the topline could be 20%, the report warned.
“At minimum, we suspect there will be very significant disruptions and sales deterioration through the second quarter because of store closings and economic contraction,” S&P said in a news release, noting that the U.S., Canada, and Europe “are following a similar path, as increasing restrictions on person-to-person contact lead to an unprecedented demand collapse for many discretionary retail and restaurants segments.
In the U.S., Congress is considering direct support to consumers through cash payments but S&P said that was “unlikely to soften the blow to retail and restaurants, at least in the short term” as consumers are likely to be “cautious about any interaction in the coming weeks and possibly months.”
S&P is expecting restaurant sales to decline substantially, particularly for casual diners, as more people eat-in and are commuting less or not at all, extending the weak traffic trend the industry has experienced over the past couple of years.
Grocery, though, could be “a bright spot as consumers hunker down and stock up for an indefinite period of homebound life.”
The coronavirus crisis may also accelerate the shift from brick-and-mortar stores to online shopping. E-commerce generated 11% of total retail sales in the U.S. last year, according to the Census Bureau.
“We expect a meaningful jump in 2020 and beyond as comfort grows with the channel, particularly in the lightly penetrated U.S. grocery segment,” S&P said.
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