Fitch Ratings: The retailers most vulnerable to current spending downtown include…

The COVID-19 pandemic is upending U.S. retail discretionary spending, which is projected to decline by 40% to 50% in the first half of 2020.

That’s according to a post from Fitch Ratings, which expects a slow rate of improvement through the summer from a current 80% to 90% decline in sales — if stores start to open mid-May or early June. The downturn is expected to extend into 2021, with sales forecast to fall 8% to 10% from 2019 levels, Fitch stated. 

Sales declines for the secularly challenged department stores are expected to be more material on a relative basis, according to Fitch. But revenue trends could improve exiting 2021, given the typical four to six quarter duration of a consumer downturn, resulting in 2022 being a growth year.

Fitch said it anticipates that many retailers in its coverage universe can weather the current challenges, given good market positions and sufficient liquidity stemming from operating and cash flow preservation initiatives, potentially emerging in stronger positions over time as weaker competitors go out of business.

Notable exceptions, according to Fitch are J.C. Penney, “given our expectation that material cash burn in 2020 will significantly challenge its liquidity position with the potential for a debt restructuring in 2021 should our forecasts come to fruition.”  

Also, GNC could default in the coming months as the company has been unsuccessful in its attempts to address August 2020 and early 2021 maturities, Fitch said.

J. Crew and Land’s End may be challenged in addressing sizable maturities due 2021, increasing default risk including via a distressed debt exchange, according to Fitch. J. Crew’s plan to monetize its Madewell business through an IPO could be difficult to execute in the near term given equity market volatility.