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Navigating a changing retail world

Jharonne Martis
Jharonne Martis
Director, Consumer Research, Refinitiv

How can analysis tools be employed to gain insights into how the COVID-19 pandemic has affected consumer behavior? And how can this analysis help retail firms develop strategies to make their businesses sustainable? 

  1. Analysis tools, such as the StarMine Smart Ratios Credit Risk Model and Refinitiv Ipsos Primary Consumer Sentiment Index, can provide insights into who the Q1 retail winners and losers are.
  2. COVID-19 is changing consumer behavior. Consumer spending has been affected by people’s concern over their employment status, while e-commerce and online sales have helped to offset the increase in store closures.
  3. Among the worst-affected sectors of retail in Q1 2020 were department stores, but comfort and home furnishing brands have weathered the storm.

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The COVID-19 pandemic slammed into the retail industry with the force of a sledgehammer as stores closed around the world in the first half of 2020.

As retailers navigate uncharted territory, some are withdrawing earnings guidance, some are exploring bankruptcy, and other chains are judging when to re-open their stores.

How can we use analysis tools to discover the Q1 retail winners and losers?

How can Refinitiv StarMine models be used in your fundamental and quantitative investment research?

Analyzing retail earnings

The StarMine Smart Ratios Credit Risk Model combines alternative data with fundamental data to identify which companies look more sustainable as COVID-19 changes consumer spending behavior and preferences.

The Refinitiv Ipsos Primary Consumer Sentiment Index indicates that as people cope with the coronavirus outbreak, they are also concerned about their employment situation, and this has a strong correlation with consumer spending. A 14.7 percent unemployment rate translates into weak retail same store sales (SSS), and Q1 sales were mostly negative.

Retail Sales Q1 2020 Image. COVID-19 restrictions and unemployment negatively affected retail sales. Navigating a changing retail world.

Among the retail sectors, the multiline category had the most negative sales, which were down in the triple digits. This weakness was mainly caused by the department stores that had already been coping with weak mall traffic before the pandemic. Positive sales trends were seen in the food and staples, household durables, and products sectors.

Some retailers held back SSS numbers because this is usually a comparative indicator of stores that are open. The negative retail sales numbers were very steep, by as much as -40 percent and -50 percent — worse than in the Great Recession.

Worse than the Great Recession: Q1 2020 negative sales numbers were steep. Navigating a changing retail world

Among the strong performers were Lovesac and Crocs. As consumers sought to improve the stay-at-home experience, they sought Crocs’ comfortable shoes and Lovesac’s convenient modular furniture.

Which retail companies are more sustainable?

The StarMine Smart Ratios Credit Model analyzes companies’ profitability, leverage, liquidity and interest coverage to determine which companies are more sustainable.

Among the lowest scoring companies are Iconix, which sells products to department stores (a score of 1 out of 100); Pier 1 Imports (1); Rite Aid (1); GNC (2); Ascena Retail (2); Tailored Brands (2); and Fred’s (3).

The Stermine Smart Ratios Credit Model determines the financial sustainability of companioes. Navigating a changing retail world

The StarMine Text Mining Credit Risk Model analyzes text in articles and news releases for signals of company health. For instance, last April when privately held Lord & Taylor explored bankruptcy, news outlets including Reuters wrote more about it.

Another analysis involves combining alternative data with fundamental data, such as Refinitiv’s collaboration with BattleFin Ensemble Platform.

The Fathom China Momentum Indicator, which can be found in Eikon under Datastream, gives better insight into China’s true economic activity. China has been criticized for a lack of economic reporting transparency. The Fathom China Momentum Indicator combines 12 economic indicators to glean an accurate picture of China’s GDP.

Another indicator is data on job listings and layoffs, managed by LinkUp. This data is often a leading indicator of trouble at a company.

Analyzing retail price data

Refinitiv’s collaboration with StyleSage produces data on product prices online, such as which products sell out and which are being discounted. For instance, as stores closed and inventories piled up, 63 percent of merchandise online was discounted as of 17 May and the average discount was 21 percent, higher than in 2019.

StyleSage data shows that the average retail discount in May was 21% higher than in May 2019. Navigating a changing retail world

These alternative data sets help to see how things are changing in real time. They are powerful tools, especially when combined with fundamental research.

Using an omnichannel strategy

Looking ahead, having an omnichannel strategy is key for retail survival.

Luxury brand LVMH said that e-commerce and online sales helped offset the impact of store closures in China, Europe and the U.S. Home Depot reported that digital sales were up 80 percent, with 60 percent of that being delivered by curbside pickup.

Looking at sales trends, there is a do-it-yourself (DIY) culture around the stay-at-home life. Fabrics to make masks have been selling and DIY projects around the home are benefiting Home Depot.

Drilling down to individual products, it may be no surprise that robes, socks, sleepwear, activewear, and tank tops are selling well and not subject to discounting.

Grooming trends are also changing. Procter & Gamble noted that people aren’t shaving, since they’re not going into the office, so those products are being discounted. However, since men are growing beards at home, beard grooming products are selling out.

The future of indoor shopping

Customers’ emotions concerning the virus and a return to indoor shopping aren’t encouraging. Some 35 percent of consumers said they would wait to return to a mall.

When asked whether live concerts should resume before there is a vaccine, 55 percent said “no.”

How can Refinitiv StarMine models be used in your fundamental and quantitative investment research?

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