At the best of times, many retailers were struggling to gain any footing with customers, but now it is even more difficult to survive.
The coronavirus pandemic represents an “existential threat” to the entire retail sector and there will be a “fundamental changes” to the longer-term business model, Steve Sadove, former chairman and CEO of Saks, said in a Thursday CNBC “Squawk Box” interview.
E-Commerce Doesn’t Offset Loss Of Foot Traffic
It is nearly impossible to sustain a business with zero revenue, and foot traffic in malls is down as much as 97% year-over-year, Sadove said.
For those that can sell online, e-commerce revenue is falling far short of offsetting lost sales in stores, he said.
Hghly leveraged retailers with a debt-to-EBITDA ratio of four or five times will find it more difficult to survive, the former CEO said. Some of the companies in this category include Neiman Marcus, J. Crew, and “potentially” J.C. Penney, he said.
Pace Of Economic Recovery In Question
At the best of times, many retailers were struggling to gain any footing with customers, but now it is even more difficult to survive, Sadove said.
Even those that fared better “can’t survive this forever,” he said.
The main challenge for retailers is figuring out how to survive and make it through to “the other side” of the pandemic, Sadove said.
At that point, those with liquidity need to worry about the pace of recovery, as it is unclear if it will be a “V-shaped” or “U-shaped” recovery, he said.
It is equally as plausible that retail sales in the fourth quarter will be down 30% year-over-year or more compared with 2019, Sadove said.
Bentz: Retail Was Already In An Existential Crisis
Many companies in the retail sector were already in an existential crisis prior to the coronavirus outbreak, KB Advisory Group President Kristin Bentz told Benzinga in an e-mail.
These companies were guilty of not reacting fast enough to address the shift in consumer buying behavior toward online, she said.
The coronavirus could prove to be a death blow to those that were “already on life support” or “idling in irrelevance” for too long, such as J.C. Penney, Bentz said.
On the other hand, companies in the retail sector that can continue…
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