As COVID-19 retail shutdowns persist, a recent study has shown that more than half of the UK’s major non-food retailers will run out of cash by the summer if conditions don’t change. Sales have dropped by as much as 70% and warehouses are filling up with unsold stock.
In the US, a reported 630,000 outlets have had to close in line with COVID-19 restrictions, and the National Retail Federation has estimated that $430bn in industry revenues could be lost in the next three months.
Consensus credit data sourced from leading financial institutions shows a long-term deteriorating trend for retailers in the US and UK in the midst of the extended global ‘retail apocalypse’, now exacerbated by the unprecedented effects of COVID-19 shutdowns.
US general retailers continue to see weakening credit quality, deteriorating 0.5% on a monthly basis and a much larger 6.1% over the past year. The average probability of default for these firms is now 51.5 basis points — the highest probability of default reading recorded since Credit Benchmark began tracking this data. The current Credit Benchmark Consensus (CBC) rating for this aggregate has remained bb+ over the last year.
The trend has been similar, but more pronounced for UK retailers, which have seen their average credit quality deteriorate 0.8% over the last month and 4.8% year-over-year. The average probability of default for these firms is now 71.9 basis points, compared to 71.3 basis points in the prior month and 68.6 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating for UK retailers has remained bb+ over the last year, but is now within just 6.1 basis points of a downgrade.
About Credit Benchmark Monthly Retail Industry Aggregate
This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d.
To download the April 2020 Retail Aggregate PDF, click here.