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April retail market: March US sales post record decline; 4 retailers go bankrupt

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April retail market: March US sales post record decline; 4 retailers go bankrupt

U.S. retail sales suffered a historic decline in March, and experts expect more dark days ahead as the coronavirus pandemic keeps American consumers at home.

The U.S. Census Bureau reported that sales fell 8.7% from February as the coronavirus crisis continues to rattle businesses and forces retailers to close stores because of government-imposed lockdowns and social restrictions to curb the spread of the disease. As of April 15, more than 128,880 people have died worldwide from COVID-19, the disease caused by the coronavirus, according to data from Johns Hopkins University's Center for Systems Science and Engineering.

Experts predict a deeper downturn in sales, partially since some businesses were still open in early March.

"March was a month that started out with many stores still open, but far more are closed now," Jack Kleinhenz, chief economist at the National Retail Federation, said in a statement. "Don't be surprised if the data going forward shows a worsening situation."

Meanwhile, four companies went bankrupt in late March through mid-April, according to an analysis by S&P Global Market Intelligence. Employment in the sector also declined.

Retail sales

The fall-off in U.S. retail food service sales marked the largest month-over-month decline since the U.S. Commerce Department started tracking the data in 1992.

Sales totaled a seasonally adjusted $483.07 billion during the month, data released April 15 by the Census Bureau shows.

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"The combination of soaring unemployment and shelter-in-place policies across the economy sent U.S. retail sales down," Joseph Brusuelas, chief economist at RSM US LLP, said April 15.

Gregory Daco, chief U.S. economist at Oxford Economics, said in a note that the drop in retail sales is just the "beginning of the consumer pullback and points to a massive collapse in consumer outlays in Q1-Q2." Daco expects "social consumption" to decline even further in the coming months.

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"April retail sales numbers will be much worse, even if some states begin tentatively to release their lockdowns by the end of the month," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note. "That will come too late to rescue April sales."

Kleinhenz said the road to recovery could be slow. "Even if the economy begins to reopen in May, consumer behavior may take a long time to adjust," he added.

Stores that sell clothing and clothing accessories registered the sharpest decline in sales in March, at 50.5% to $11.09 billion. Food services and drinking places saw a 26.5% decline in sales to $48.56 billion, while furniture and home furniture stores posted a 26.8% drop to $7.34 billion.

Spending at food and beverage stores, a category that includes grocery stores, rose 25.6% to $82.1 billion. Sales at general merchandise stores increased by 6.4% to $63.78 billion, but sales at department stores, a category within general merchandise, fell 19.7% month over month.

Nonstore retailers, meanwhile, saw a 3.1% increase in sales during March to $68.79 billion.

The consumer price index fell 0.4% in March, recording its biggest monthly decline since January 2015, according to a U.S. Bureau of Labor Statistics report.

Year over year, prices rose by 1.5%.

The core CPI, which excludes food and energy prices, decreased 0.1% during the month. Energy prices fell 5.8%, while food prices rose by 0.3%.

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Apparel prices decreased by 2% in March versus the previous month. Prices for men's and boys' apparel rose by 0.2% month over month, while prices for women's and girls' apparel declined by 3%.

Footwear prices decreased by 2.8%, while the prices of jewelry and watches increased by 0.1%.

Bankruptcy

Four Market Intelligence-covered U.S. retail companies went bankrupt in late March and early April, bringing the total bankruptcy count for 2020 to 14.

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

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A group of creditors on April 13 filed an involuntary petition for liquidation under Chapter 7 against New York-based Castella Imports Inc., an importer of specialty foods.

True Religion Apparel Inc. filed for its second bankruptcy since 2017 in April. The jeans-maker filed a voluntary petition for reorganization under Chapter 11 on April 13.

The company listed both its assets and liabilities in the range of $50 million to $100 million.

Donghia Inc., which manufactures and sells furniture, textiles and wall coverings, filed a voluntary petition for liquidation under Chapter 7 on March 30. CHIEF Corp., which supplies equipment and apparel for the public safety industries, filed a voluntary petition for liquidation under Chapter 7 in the U.S. on March 20.

Employment

The retail sector shed 46,200 jobs in March, down to 15.6 million jobs. That is a decrease of 0.29% from February, according to an April 3 monthly report from the U.S. Bureau of Labor Statistics.

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Jobs at furniture and home furnishings retailers declined by 10,400, or 2.21%, to 459,500 for the month. Sporting goods, hobby, books and music stores lost 9,200, down 1.68%, jobs to 538,400.

Clothing and clothing accessories stores registered a decrease of 16,300, or 1.27%, jobs to 1.3 million in total.

General merchandise stores added 10,300, or 0.34%, jobs in March to 3.1 million. Employment at food and beverage stores rose by 1,100, a 0.04% increase, jobs to 3.1 million.

Vulnerability

An April analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 12.9% to 2.1% and corresponding implied credit scores of "ccc+" to "b+."

The calculated one-year probability of default remained unchanged for more than half of the retailers on the list.

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Christopher & Banks Corp. continued to top the list as its one-year probability of default remained unchanged from the March iteration. L Brands Inc.'s calculated one-year probability of default ticked up to 8.8% from 8.7%.

Specialty apparel retailer Tailored Brands Inc. climbed to the No. 2 spot as its one-year probability of default increased to 10.5% from 8.3% in the prior month.

Destination XL Group Inc. fell to the No. 6 spot as its one-year probability of default decreased to 8.5% from 9.9%.

J. C. Penney Co. Inc., at the No. 13 spot, is reportedly considering filing for bankruptcy as the coronavirus outbreak impairs its turnaround plans. The struggling U.S. retailer has closed all of its stores and furloughed most of its hourly employees due to the crisis. Rating agency Moody's on April 14 downgraded the company to reflect the expected adverse impact of the coronavirus pandemic and revised its outlook on the company to negative from stable.

New to the list is Xcel Brands Inc., with a probability of default of 2.4%. The company pushed Delta Apparel Inc. off the list.

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S&P Global's Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, see the PD Model Fundamentals - Public Corporates white paper.