Retail

Retail Recovery Continues Its Inconsistent Path

Retail Recovery Continues Its Inconsistent Path

The retail recovery continues to be inconsistent, as new reports show that upstream ordering issues will start to hurt suppliers and intermediaries as the pandemic still rages in the U.S.

On the plus side, malls started to reopen in several states over the weekend. People are returning to work, as evidenced by the most recent report that showed 4.8 million new jobs added in June. As The Motley Fool reports, the Manufacturing ISM Index, a key performance indicator for factory activity, jumped above the critical 50 level for June, bouncing back from May's reading of 43.1 to 52.6. Stocks have rallied accordingly.

On the flip side, the bankruptcy news continues. New York & Co. parent company RTW Retailwinds announced on Monday (July 13) that it will file for bankruptcy and plans to permanently close most of its 350-plus stores. The company said it has already started liquidation sales, with 92 percent of its locations now reopened. It also told CNBC that it is evaluating selling its eCommerce operations.

“The combined effects of a challenging retail environment, coupled with the impact of the coronavirus pandemic, have caused significant financial distress on our business, and we expect it to continue to do so in the future,” RTW Retailwinds CEO and CFO Sheamus Toal said in a statement.

Other economic signs are concerning when it comes to any kind of V-shaped recovery, especially with the virus unchecked in many states. The Motley Fool reports that some apparel brands, including Nike and Ralph Lauren, have cut their orders substantially. Nike's CFO Matthew Friend said during the company's June conference call that "we modified our near-term inventory buying plans and proactively canceled pre-COVID-19 factory purchase orders for the fall and holiday seasons by roughly 30 percent on a unit basis."

Ralph Lauren's CFO/COO Jane Nielsen similarly commented during the company's Q4 conference call: "We were able to cancel about two-thirds of our fall holiday orders, take stock of where we were on an inventory level, and then fill in to make sure that we have fulsome assortments for [the] fall holiday that are better aligned to demand.”

“When one combines the inventory and demand comments from Macy's, Nike, Ralph Lauren and Kohl's, the picture starts to become clearer for the entire retail sector,” says the investing site. “These companies are tacitly saying that the bigger risk at this time isn't buying enough goods, but rather, procuring too much inventory that may go unsold. It's a hint that retailers don't want to end up with too much unmarketable inventory, as they did coming out of Q1.”

Meanwhile, the extent of the Q1 damage continues to be assessed. According to Retail Metrics data as reported by CNBC, the retail sector’s first-quarter operating income fell 57.7 percent compared to 2019 – and 71.1 percent when not including Walmart, a new report said on Friday (July 10). It is the worst retail earnings performance since the late 1990s.

As Retail Metrics noted, the previous low was during the Great Recession, when earnings slid 26.6 percent year over year in Q4 of 2008. The most significant quarterly drop after the Dot.com Bubble was a decline of 11.7 percent in Q4 of 2000.

The report also quantified the earnings gaps between mall and non-mall retail earnings. The difference grew significantly this quarter, as mall-based retailers closed due to the pandemic. First-quarter earnings for mall chains dropped 626 percent, but off-mall companies saw only a 26 percent slide.

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