Despite some signs — or perhaps hopes — that consumer spending has bottomed out, Moody’s Investors Service said credit conditions will continue to worsen for retailers in the next 12 to 18 months.
“With the economy in recession and consumers in retreat, our negative outlook on the U.S. retail industry shows no signs of stabilizing anytime soon,” said Moody’s in an analysis released Tuesday. The debt rating agency said about 40 percent of the retailers it tracks have a negative credit outlook or are on review for possible downgrade.
On the other hand, Federal Reserve chairman Ben Bernanke told Capitol Hill lawmakers Tuesday recent economic data show the pace of the contraction might be slowing. J.C. Penney Co. Inc. and other retailers have also cautiously pointed to signs of improvement in their stores.
“In coming months, households’ spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment,” said Bernanke, who continues to expect the economy to bottom out and then turn up later this year.
Qualifying his remarks, he said spending will continue to be pressured by weakness in the labor market — the U.S. has lost more than 5 million jobs since the recession began — as well as declines in the equity and housing markets and tight credit conditions for consumers.
Economists are concerned the stimulus, billions of government dollars intended for job creation, will cause an inflation problem down the road even if it does help get the economy growing again.
Still, if Bernanke was seeing the glass as half full, Moody’s saw it as half empty.
“We expect a lot of bad news in the year ahead,” said the debt watchdog. “Nearly 20 percent of retailers are rated ‘Caa1’ or lower, indicating our view that the number of defaults in the retail industry will rise.” A rating in the “Caa” category indicates a company’s debts are “subject to very high credit risk” and are judged to be in poor standing.
Of the eight types of retailers tracked by Moody’s, specialty and department stores were deemed to be most vulnerable to credit risk, while drugstores were most secure.
“Most at risk are companies that sell expensive products people aspire to own but don’t need, such as specialty retailers, like jewelry stores, and high-end department stores,” Moody’s said. “A long-term change in shopping patterns away from these types of stores would deal a further blow to their credit profiles, which are already speculative-grade.”
Many specialty retailers have fragile capital structures, heavy interest burdens and little room for operating error, Moody’s said.
The debt-rating firm noted that most, but not all retailers, should have adequate liquidity over the next 12 months.
For their part, investors pushed retail shares up 0.3 percent Tuesday and are waiting for more definitive statements on the performance of stores and the economic health of households. Retailers report April sales result on Thursday, with the government’s unemployment data for the month to be released on Friday.
The S&P Retail Index rose 1.04 points to 342.10 — up more than 53 percent from the index’s March 6 low. The Dow Jones Industrial Average dipped 0.2 percent, or 16.09 points, to 8,410.65.
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty