Industry Top Trends 2021 · 2020. 12. 10. · Industry Top Trends 2021: Retail and Restaurants S&P...

S&P Global Ratings 1

Industry Top Trends 2021 Retail and Restaurants A New Normal Beckons For Retailers And Restaurants Post COVID-19

What’s changed? Grocers see a sharp rise in demand. Food and big box retailers benefitted from demand for basics, consolidated shopping trips, and larger baskets.

E-commerce penetration reaches record levels. This puts mall-based specialty apparel retail and department stores under huge pressure.

COVID-19 has dramatically altered consumer behavior. Consumers are using savings from foregone experiences and stimulus receipts to spend on their homes. The nesting trend has benefitted home improvement and other specialty retailers.

What are the key assumptions for 2021? Some normalcy for consumers. A vaccine will provide some relief. Some discretionary retailers and casual diners will not restore credit metrics before 2023.

E-commerce will continue growing. Higher logistics costs and investments will dilute profits. Mall-based retail is unlikely to return to pre-COVID-19 levels.

A stimulus could offset some lost demand. In Europe and the U.S., government support should help unemployment levels. Brexit-related risks remain elevated.

What are the key risks around the baseline? Pent-up demand for travel and entertainment may cause volatility. Post vaccine consumers may shift spending sooner and more dramatically than we expect.

Shareholder-friendly policies and higher capex could cause challenges. M&A will be muted, but share buybacks and capex could rise, limiting financial flexibility.

More defaults and heightened solvency risks. About 20% of ratings are in the ‘CCC’ category. The speculative-grade global default rate could stay above 10%.

December 10, 2020

Authors Sarah Wyeth New York +1 212 438 7808 sarah.wyeth @spglobal.com Raam Ratnam London +44 207 176 7462 raam.ratnam @spglobal.com Aniki Saha-Yannopoulos Toronto +1 416 507 2579 aniki.saha-yannopoulos @spglobal.com Ryohei Yoshida Tokyo +81 3 4550 8660 ryohei.yoshida @spglobal.com Sam Playfair Melbourne + 61 3 9631 2112 sam.playfair @spglobal.com Wendell Sacramoni Sao Paulo + 55 11 3039 4855 wendell.sacramoni @spglobal.com Research Contributor Akanksha Bijalwan Mumbai +91 7738690477 akanksha.bijalwan @spglobal.com

Industry Top Trends 2021: Retail and Restaurants

S&P Global Ratings December 10, 2020 2

Ratings trends and outlook Global Retail and Restaurants Chart 1 Chart 2

Ratings distribution Ratings distribution by region

Chart 3 Chart 4

Ratings outlooks Ratings outlooks by region

Chart 5 Chart 6

Ratings outlook net bias Ratings net outlook bias by region

Source: S&P Global Ratings. Ratings data measured at quarter end. Data for Q4 2020 is end October, 2020

05

101520253035

AA

AA

A+ AA

AA

-A

+ A A-

BB

B+

BB

BB

BB

-B

B+

BB

BB

-B

+ B B-

CC

C+

CC

CC

CC

-C

C CS

D D

Retail and Restaurants

05

101520253035

AA

AA

A+ AA

AA

-A

+ A A-

BB

B+

BB

BB

BB

-B

B+

BB

BB

-B

+ B B-

CC

C+

CC

CC

CC

-C

C CS

D D

North America EuropeAsia-Pacific Latin America

Negative50%

WatchNeg4%

Stable42%

WatchPos1%

Positive3%

0%

20%

40%

60%

80%

100%

APAC LatAm N.America Europe

Negative WatchNeg Stable WatchPos Positive

-70-60-50-40-30-20-10

0

13 14 15 16 17 18 19 20

Retail and RestaurantsNet Outlook Bias (%)

-80

-60

-40

-20

0

20

40

13 14 15 16 17 18 19 20

N.America Europe

Asia-Pacific Latin AmericaNet Outlook Bias (%)



Shape of recovery Table 1

Sector Outlook Heatmap

Sensitivities And Structural Factors Shape Of Recovery

COVID-19 Sensitivity

Impact If No Vaccine in

2021

Long-Term Impact On

Business Risk Profile

Revenue Decline –

2021 vs 2019

EBITDA Decline –

2021 vs 2019

Revenue Recovery

To 2019 Levels

Credit Metric

Recovery To 2019

Levels

Retail

Food and big box High Positive Neutral >=2019 >=2019 No impact No impact

Home-improvement

& DIY Moderate Positive Neutral >=2019 >=2019 No impact No impact

Pharma &

drugstores None None Neutral >=2019 >=2019 No impact No impact

Apparel &

department stores High Negative Negative 10%-20% 20%-30% Unlikely 2022

Specialty retail High Positive Neutral >=2019 >=2019 No impact No impact

Restaurants

Casual dining High Negative Neutral >=2019 0%-10% 2021 2022

Quick service

restaurants Moderate None Neutral >=2019 >=2019 No impact No impact

Pubs High High Moderate 10%-20% 20%-30% 2022 2024

Source: S&P Global Ratings.

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly. This report does not constitute a ratings action.

http://www.spglobal.com/ratings



Retail and Restaurants Ratings trends and outlook As of mid-November, there were 19 defaults in the U.S., nearly twice as many as in 2017, the next worst year for defaults. The 20% speculative-grade default rate compares to the wider corporate default rate of around 6%, illustrating the intense stress the pandemic wrought on retail and restaurants in 2020. The speculative-grade default rate in Europe for the sector is also elevated at around 13%.

The proportion of issuers rated ‘CCC+’ to ‘CC’ is another way to measure stress in the sector. Prior to the pandemic, about 17% of our U.S. issuers were in this rating range. This rose to 27% at the peak of the pandemic and will end the year around 20%, with the difference split between issuers that defaulted and those that recovered and we upgraded to the ‘B’ category. In Europe, the share of ‘CCC’ ratings more than doubled to 23% from 10% at the beginning of the year. This reflects an even greater level of stress on the companies in the region because of the pandemic. Issuers in the ‘CCC’ category typically face a liquidity issue in varying stages of urgency. Receptive capital markets allowed many issuers to refinance or extend impending maturities and amend tightening covenants.

After exclusively negative rating actions in March and April, rating trends began to reverse over the summer as consumers demonstrated resilience and shifted their spending to products that enhanced life at home from experiences and dining out (see chart 7). Most rating actions since August have been positive, reflecting improving credit quality of issuers that have benefitted from the nesting dynamic and elevated food-at-home spend. Robust liquidity following preemptive refinancing and measures to lower costs and preserve cash also played a role in some of the positive rating actions.

Chart 7

Positive vs. negative rating actions since the pandemic onset, US and EMEA

Note: Negative rating actions: downgrades, outlook revised to negative, and ratings put on CreditWatch negative. Positive rating actions: upgrades, outlooks revised to stable from negative or positive from stable, ratings put on CreditWatch positive, and removing ratings from CreditWatch negative. Source: S&P Global Ratings.

Nevertheless, just over half of our ratings in the sector have a negative outlook or are on CreditWatch with negative implications. As the U.S. faces a resurgence of COVID-19 and potentially additional shutdowns, social distancing mandates will likely limit capacity for in-store purchases and pressure supply chains. In the cooler winter months, outdoor

0

5

10

15

20

25

30

Total negative Total positive



dining will not provide the same relief to full-service restaurants that it did in the summer and fall.

In Europe, the majority of our ratings (57%) have a negative outlook or are on CreditWatch with negative implications. This is notwithstanding the lower rating level overall, following negative rating actions already taken in 2020 so far. The elevated negative bias indicates further likelihood that credit quality will weaken as a result of the second wave of infections, which have resulted in lockdowns in several countries. These second-wave lockdowns and restrictions come in the critical “golden” quarter for retailers, which includes the important Black Friday and Christmas trading period. Nonessential retailers, especially those without a well-developed e-commerce platform face the prospect of significant stress during this critical period, during which many of them earn the bulk of their annual profits.

Main assumptions about 2021 and beyond

1. Consumer spending patterns will remain affected until there is a vaccine

While the risk of contagion remains, consumers will likely continue to observe social distancing, limit their shopping in brick-and-mortar stores, and focus spending on products that enhance life at home such as furniture, décor, electronics, hobby materials, fitness equipment and attire, athleisure, and loungewear. Meanwhile, mall-based retail and department stores will likely continue to struggle because of virus fears and merchandise that is less relevant to consumers.

2. The new normal will include new shopping behaviors

When a vaccine is available, we believe consumers will be eager to return to many of the experiences they avoided during the pandemic, including out-of-home dining and entertainment, travel, and events. However, some shifts in behavior are here to stay. We believe digital sales as a proportion of total sales will not return to pre-pandemic levels. Consumers have learned new convenient ways to shop. Even grocers have witnessed a sharp rise in online sales. The retailers who can profitably provide a seamless omnichannel experience will come out on top.

3. Consumer confidence and financial health may depend on additional government stimulus.

Our base case assumes another U.S. stimulus package is agreed in 2021 of $1 trillion, significantly smaller than the first stimulus package, and too late to support the holidays. These transfers, albeit smaller, plus the cushion of savings consumers have built in 2021 should support spending in the second and third quarters as consumers feel safe to return to pre-pandemic activities.

The EU’s fiscal policy stance has turned significantly expansionary this year and most European governments have committed to kick starting the recovery. France and Germany have unveiled packages on the order of 4% of GDP, and the EU has offered support to member countries that could total as much as €1.3 trillion or 5.4% of GDP, via several programs.

Consumers have proven more resilient than we expected. After a precipitous decline in April, retail sales in the U.S. and Europe have recovered significantly (see charts 8 and 9). However, the recovery has not been even across subsectors. Issuers in the most negatively affected subsectors, such as specialty apparel, still have significant ground to make up before returning to 2019 levels. October retail sales continued to show gains in home categories but remained weak overall as improvement in many categories slowed.



Similarly, restaurant spending flattened. Whereas consumer resilience surprised us to the upside through the fall, the winter may play out differently as consumers hunker down.

Chart 8 Chart 9

U.S. retail sales, select sectors Eurozone retail sales, select sectors

Source: U.S. Census Bureau. Note: Home improvement includes building materials and garden equipment and supplies dealers; clothing and accessories include clothing and clothing accessories stores; grocery includes grocery stores.

Source: Eurostat. Note: Apparel includes textiles, clothing, footwear and leather goods in specialized stores. IT equipment includes computers, peripheral units and software; telecommunications equipment, etc. in specialized stores. Food, beverages and tobacco includes food, beverages and tobacco. Data is seasonally and calendar adjusted.

In the U.S., consumer confidence reached its highest level in October since the pandemic started but is still considerably below pre-pandemic levels (see charts 10 and 11). Consumers’ concerns about a resurgence of COVID-19 and the results on the presidential election caused a decline in early November.

Chart 10 Chart 11

U.S. consumer sentiment Consumer confidence in Europe

Source: University of Michigan. November results are preliminary. Source: Eurostat. Note: The indicator represents the balance i.e. the difference between positive and negative answers (in percentage points of total answers). Seasonally adjusted data, not calendar adjusted data. Data for Italy, April 2020 was missing therefore the line was smoothed on this data point.

Retail and restaurants emerged from the spring’s broad economic shutdown to a dramatically different competitive landscape centered around consumers that have shifted spending to life at home. Grocers and many specialty retailers have benefitted from this shift. We will see how enduring these consumption habits are in 2021 and

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

Jan Feb Mar Apr May Jun Jul Aug Sep

Yea

r-ov

er-y

ear

chan

ge

Home ImprovementClothing and AccessoriesGrocery

0

20

40

60

80

100

120

140

May

-19

Jul-

19

Sep

-19

Nov

-19

Jan-

20

Mar

-20

May

-20

Jul-

20

Sep

-20In

dex

of t

urno

ver

(201

5 =

100

)

ApparelIT EquipmentFood, Beverages and Tobacco

70

75

80

85

90

95

100

105

Nov

-19

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

Jul-

20

Aug

-20

Sep

-20

Oct

-20

Nov

-20

-30

-25

-20

-15

-10

-5

0

5

Jun-

19

Jul-

19

Aug

-19

Sep

-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

Jul-

20

Aug

-20

Sep

-20

Oct

-20

Eurozone GER ESPFRA ITA UK



beyond. We believe consumers will continue current spending patterns into the first half of 2021, when we expect a vaccine will be widely available. Then we expect the shift of wallet back to experiences to occur gradually over the remainder of the year and into 2022.

The pandemic has been a catalyst for the digital transformation of retail, as evident in the dramatic growth of digital sales penetration (see charts 12-14). We expect penetration of digital sales to remain high through the winter given safety concerns, convenience, and price transparency. Even when a vaccine is available and fears of the virus no longer influence consumer behavior, we believe they will continue to spend more online than they did before the pandemic. We believe online sales penetration will remain high because it serves the convenience and value that consumers sought in the years leading up to the pandemic. Retailers who can maintain margins while they meet the consumer in whatever manner they prefer to shop—be it click-and-collect, curbside pick-up, delivery, social commerce, or in-store—will have a better competitive position in the new post-pandemic normal. Amazon’s expansion into brick-and-mortar locations demonstrates the importance for retailers to cater to broad consumer shopping preferences. The company continues to rule the e-commerce channel (about 37% of online retail sales in the U.S. are from Amazon, according to eMarketer) and explore new areas of potential dominance. Its scale and logistics enable it to undercut competitors’ prices while providing attractive convenience to consumers. Its latest target market is pharmacies, which is likely to put large players such as Walgreens on the defensive.

Chart 12

E-commerce as % of sales of select issuers, Europe and North America

Source: S&P Global Ratings.

Chart 13 Chart 14

U.S. e-commerce sales growth E-commerce sales growth in Europe

Source: U.S. Census Bureau. Source: Eurostat. Note: Data is seasonally and calendar adjusted.

0%

10%

20%

30%

40%

50%

60%

70%

Dept store/apparel Specialty retailers Grocer Big Box Restaurants

Pre-COVID-19 Post-shutdown

0%

5%

10%

15%

20%

25%

30%

35%

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

Jul-

20

Aug

-20

Sep

-20

Oct

-20

Yea

r-ov

er-y

ear

chan

ge

100

150

200

250

300

350

400

May-19 Sep-19 Jan-20 May-20 Sep-20

Inde

x of

tur

nove

r (2

015

= 1

00)

Eurozone GER ESPFRA ITA UK



Grocers and Big Box

Grocers were able to operate through the lockdowns because they were considered essential retailers. The closure or restrictions on restaurants and bars, and social-distancing measures, increased demand for in-house food consumption and grocers’ footfall.

Self-isolation and social-distancing measures caused a surge in demand for online groceries, with many first-time buyers. The industry is trying to build capacity to catch up with demand, but bottlenecks and service disruptions will be unavoidable. Capacity issues will also affect physical stores and logistics. Responding to the significantly increased demand, U.K.’s largest grocer, Tesco PLC, has more than doubled capacity in its online business to 1.5 million orders per week. To support this accelerated shift in customer demand, it has extended pick-up hours, widened delivery windows, and brought in additional staff on a temporary basis. In August, it converted 16,000 of these temporary roles into permanent ones. Online grocery sales had grown to more than 16% of Tesco’s total U.K. sales by the end of August while it accounts for about 12.5% of the total U.K. grocery market according to Kantar.

The broad offerings of big box retailers positioned them well for consumers’ desire to limit in-person shopping trips. In the U.S., Target and Walmart benefitted from being deemed essential and remaining open during the shutdown. Consumers initially stocked up on basics and groceries but as the pandemic wore on, they shifted to apparel, sporting goods, toys, and other general merchandise. Walmart’s focus on e-commerce helped drive its third-quarter digital sales growth to 80% over last year. Similarly, at Canadian Tire, online sales were up 200% from 2019, albeit from a smaller base. Where additional restrictions are imposed in Canada because of a second wave, full-service grocery stores will benefit compared with discount stores as customers consolidate shopping trips.

Generally, larger basket sizes will more than offset footfall declines, with convenience formats, wine and spirits, and frozen foods outperforming the rest of the market. Customers’ preference for convenience will mean larger stores underperform proximity stores. Greater focus on sustainability also increasingly drive customers’ preference for fresh and healthy products and local produce.

Specialty Apparel, Department Stores, Luxury, and Travel Retail

With consumers shifting some of their spending online permanently, we believe they are unlikely to return to brick-and-mortar mall-based specialty apparel and department stores. Mall-based retail has been gradually declining for years as the industry struggles to adapt to shifting consumer preferences in the products they are buying (less formal, more casual) and how they buy (less in-store, more digital). The pandemic has accelerated these trends. Our September rating action on Nordstrom Inc. (see “Nordstrom Inc. Downgraded To ‘BB+’ From ‘BBB-’ On Declining Competitive Position; Outlook Negative,” published Sept. 3) illustrates how these shifts are affecting credit. Nordstrom is the second U.S. department store to become a fallen angel in 2020, following Macy’s Inc. which we downgraded prior to the broad COVID-19 impacts. In our view, much of the mall foot traffic that has been lost will never return. In the U.K., we downgraded Marks & Spencer to ‘BB+’ in March as it became clear that COVID-19-related restrictions and social distancing measures will materially reduce sales in its clothing and home division. In the same month, we also downgraded U.K.-based apparel retailer Next PLC because of the closure of its stores and online operations amid weak demand for discretionary products.

With global air passenger traffic expected to drop 60%-70% in 2020 compared with 2019, travel retailers will face substantial headwinds into 2022. Switzerland-based Dufry AG, which is a leader in travel retail with a global airport retail market share of around 20%, will see its full-year revenues fall short by about 60% in 2020, and we expect it to recover its top line to 2019 levels only by 2024. This pronounced impact of the travel disruption on



the group’s cash generation and credit metrics has led to two downgrades on Dufry over the year to B+/Watch Neg/--.

With social gatherings being discouraged and people working from home, demand for apparel dropped substantially in the second quarter of 2020. Child, lounge, and sportswear performed well, in contrast to occasion and formal wear. Trading during the summer recovered, with larger brands reporting a strong and increasing pick up in sales. While we see some recovery prospects for the sector in 2021, niches such as formal wear and men’s wear may never return to pre-pandemic levels.

With unabated pressure on retailers, operating lease costs have come into focus. We expect retailers will continue to shift toward a leaner store base as evident from significant store closure announcements through the year. We expect many retailers will be looking to optimize the cost of their floor space by rationalizing their store base and renegotiating their rental agreements. With the rapid growth of e-commerce, declining mall traffic, and growing irrelevance of anchor tenants, lessees have been advocating the need for turnover based leases. Furthermore, we expect retailers will become more selective with their store growth and push for more flexible rental terms.

Specialty Retail

Many specialty retailers have performed better than we expected. These mainly include retailers that sell products that enhance life at home, both in the physical environment and activities. Categories such as home décor, furniture, home improvement, gardening, hobbies, athleisure, fitness, electronics, and gaming have had a great year, with some retailers reporting comps of more than 20% and margins expanding on operating leverage. Even L Brands Inc. was able to offset some of the decline at Victoria’s Secret with strong demand at Bath & Body Works. The shift toward home offices increased sales of IT equipment, which are now above pre-pandemic levels. In Europe too, DIY and home improvement retailers, such as Kingfisher, Hornbach, and Maxeda, reported sales surges, as consumers spent more on home improvements in the absence of travel and with more time spent at home.

In addition, receptive debt markets have enabled issuers to address near-term maturities. Recent rating actions reflect our view of the improving outlook for these issuers and their ability to resolve near-term liquidity or maturity risk. In addition to the nesting dynamic, these retailers are benefitting from the strong housing market. We believe, barring another national shutdown, retailers that offer home-related products are relatively well-positioned into the first half of 2021, or at least until consumers are comfortable returning to pre-pandemic behavior. When that occurs, we expect consumers to begin reallocating discretionary spending to traveling, entertainment, and other experiences. For most retailers that have benefited from the nesting dynamic, we expect 2021 to start strong as current trends continue and then soften as consumers begin venturing out of the house more. Overall, 2021 will likely be a year of low-single-digit topline growth for many of these retailers with some margin pressure as operating costs return.

Restaurants and Pubs

Full service casual dining restaurants will also have a difficult road to recovery because of limited indoor dining capacity, which will become more important in cooler weather (see chart 15). Many restaurants have made impressive pivots to off-premise dining (for example, Darden Restaurants Inc. reported that online ordering grew 300% at Olive Garden in its fiscal fourth quarter). However, a resurgence of COVID-19 in the winter could trigger indoor capacity limitations, which could be especially painful in the colder months. Unlike mall-based retailing, we are sanguine that the restaurant industry will eventually recover. Consumers will eventually return to food away from home as they tire of home-cooked meals. Additionally, the permanent closure of many independent



restaurants would leave significant market share to larger restaurant chains who have the resources to weather temporary closures. Quick service restaurants (QSRs) and fast casual chains will likely continue to fare better than dine-in restaurants until the pandemic is contained because they focus on take-away, delivery, and drive-thru operations. The outlook for many restaurants is still uncertain, but the relative value offering of QSRs also positions them well during times of economic stress.

Chart 15

U.S. restaurant sales

Source: U.S. Census Bureau.

Credit metrics and financial policy

Financial policy has been supportive so far

Early in the pandemic, most issuers conserved liquidity by pausing share buybacks. Some suspended dividends as well in addition to cutting back on nonessential capex spend. Once the financial markets stabilized following the Fed’s intervention, issuers tapped the market to bolster liquidity with excess cash on the balance sheet. We viewed most of these actions positively. As the pandemic wore on and consumers found new ways to shop and new things to shop for, companies began to reverse the liquidity cushion they had built and restart shareholder friendly initiatives. In the U.S., particularly grocers, big box retailers, and even restaurants have announced new share buyback programs. In our view, pursuing less conservative financial policies before the pandemic is behind us could leave an issuer exposed to volatility in the near term.

-60

-50

-40

-30

-20

-10

0

10

Estimated change in monthly sales (%)



Key risks or opportunities around the baseline

1. Slower-than-expected recovery due to second wave of COVID-19

The recent spike of COVID-19 cases across the globe could drive a slower-than-expected economic recovery dampening job and consumer spending recovery. Future spikes of infection rates would weigh on discretionary retailers. Higher unemployment, depressed wage growth, and constrained consumer sentiment will likely restrict consumption, raising credit risks for retailers with high sensitivity to shifting tastes, consumer behavior, and lower discretionary spending.

2. Financial policy support wanes

As revenues and EBITDA recover, management may focus on shareholder returns. Given low share prices and flexibility associated with share repurchases, companies may focus on share buyback programs instead of increasing dividends. Even though we acknowledge that such programs provide management flexibility, they also can pressure metrics and reduce liquidity during times of uncertainty. The prudent financial policies, which most retailers adopted at the start of the pandemic, could start to loosen before they fully recover their financial flexibility and credit metrics.

3. Focus on omnichannel leads to stronger business models for retailers

As the growth of e-commerce continues, many retailers have increased their focus on growing their online operations. This has been accompanied by significant investment in their customer-facing systems, supply chains, warehousing, and distribution. Whilst many retailers are predominantly in the early phase of this long journey, companies that are able to offer a seamless “phygital” (physical-digital) experience could gain significant competitive advantage. As the focus shifts to omnichannel, many retailers have used the opportunity to aggressively renegotiate rents and reduce their store footprints, which could help improve their operating leverage.

Liquidity and covenant concerns have decreased but credit quality remains under pressure. Early in the pandemic, companies took multiple measures including revolver draws, debt issuance, suspending shareholder returns and cutting executive pay to conserve cash and shore up liquidity. Many of the more challenged also significantly cut capex, restricting it to bare maintenance levels. Although liquidity concerns are largely alleviated, we believe credit quality could come under pressure if issuers resort to share buybacks or dividends, funded with excess cash or otherwise, before the operating environment and earnings stabilize.

We view this risk accentuated for many sector companies due to the following reasons:

– Companies that have outperformed in terms of sales this year such as grocers and home improvement could come under pressure to reward their shareholders;

– Investment in e-commerce could result in a spike in capex; – M&A risk could increase because of market consolidation and capitalized companies

may engage in opportunistic acquisitions to buy weaker rivals with good brands; and – Significant liquidity available on back of preemptive refinancing and ready access to

capital markets.

A significant rise in shareholder remuneration, capex, or acquisitions could lead to higher leverage if the earnings start to moderate in the recovery phase for the companies that have outperformed during the crisis. The companies that are forced to invest in e-commerce, particularly those in the discretionary segments, face payback risk if the anticipated sales growth levels are not realized because of intense competition or weaker demand.



Related Research – Economic Research: Staying Home For The Holidays, Dec. 2, 2020 – Holiday Sales Could Bring More Chill Than Cheer To Struggling U.S. Retailers, Nov 6,

2020 – Canadian Grocers: Are They Ready For The Next Stage Of E-Commerce?, Oct. 15, 2020 – SLIDES: EMEA Retail & Restaurants: Industry Overview, Credit Trends, And Outlook,

Oct. 16, 2020 – Retail Trends In August Illustrated Consumers' Resilience And Shifts In Spending,

Sept. 22, 2020 – COVID-19 Will Shape The Future Of Retail, May 27, 2020

https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=46693950&From=SNP_CRS








Industry forecasts Global Retail and Restaurants Chart 16 Chart 17

Revenue growth (local currency) EBITDA margin (adjusted)

Essential and food retail offset weaker subsectors to varying degrees across regions.

Chart 18 Chart 19

Debt / EBITDA (median, adjusted) FFO / Debt (median, adjusted)

Source: S&P Global Ratings. Revenue growth shows local currency growth weighted by prior-year common-currency revenue-share. All other figures are converted into U.S. Dollars using historic exchange rates. Forecasts are converted at the last financial year-end spot rate. FFO—Funds from operations.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2017 2018 2019 2020 2021 2022

N.America W.EuropeAsia-Pacific Latin AmericaGlobal Forecast

0%

2%

4%

6%

8%

10%

12%

2017 2018 2019 2020 2021 2022


0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

2017 2018 2019 2020 2021 2022

N.America W.EuropeAsia-Pacific Latin AmericaGlobal Global SGGlobal IG

Forecast

0%5%

10%15%20%25%30%35%40%45%50%

2017 2018 2019 2020 2021 2022




Cash, debt, and returns Global Retail and Restaurants Chart 20 Chart 21

Cash flow and primary uses Return on capital employed

Chart 22 Chart 23

Fixed versus variable rate exposure Long term debt term structure

Chart 24 Chart 25

Cash and equivalents / Total assets Total debt / Total assets

Liquidity cushions were built, partly by issuing new debt.

Increases were driven by changes in U.S. lease accounting in 2019 and issuance of new debt in 2020.

Source: S&P Global Market Intelligence, S&P Global Ratings calculations. Most recent (2020) figures are using last twelve months (LTM) data.

-50

0

50

100

150

200

250

300

350

2007 2009 2011 2013 2015 2017 2019

$ Bn

Capex DividendsNet Acquisitions Share BuybacksOperating CF

7

0

2

4

6

8

10

12

2007 2009 2011 2013 2015 2017 2019

Global Retail & Restaurants - Return On Capital (%)

0%10%20%30%40%50%60%70%80%90%

100%

2007 2009 2011 2013 2015 2017 2019

Variable Rate Debt (% of Identifiable Total)

Fixed Rate Debt (% of Identifiable Total)

0

20

40

60

80

100

0

200

400

600

800

2007 2009 2011 2013 2015 2017 2019

LT Debt Due 1 Yr LT Debt Due 2 YrLT Debt Due 3 Yr LT Debt Due 4 YrLT Debt Due 5 Yr LT Debt Due 5+ YrVal. Due In 1 Yr [RHS]

$ Bn

13

0

2

4

6

8

10

12

14

2007 2009 2011 2013 2015 2017 2019

Global Retail & Restaurants - Cash &Equivalents/Total Assets (%)

41

0

5

10

15

20

25

30

35

40

45

2007 2009 2011 2013 2015 2017 2019

Global Retail & Restaurants - Total Debt / TotalAssets (%)

Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P Global Market Intelligence or its affiliates (collectively, S&P Global). The Content shall not be used for any unlawful or unauthorized purposes. S&P Global and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Global Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Global Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P GLOBAL PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Global Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.capitaliq.com (subscription), and may be distributed through other means, including via S&P Global publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. Australia: S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act). STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.

spglobal.com/ratings

Industry Top Trends 2021 · 2020. 12. 10. · Industry Top Trends 2021: Retail and Restaurants S&P...

Documents

Transcript of Industry Top Trends 2021 · 2020. 12. 10. · Industry Top Trends 2021: Retail and Restaurants S&P...