What Could the Shape of a Retail Recovery Look Like? Answers from Coresight Research

The timing, shape and strength of a post-coronavirus retail recovery remain highly uncertain. At Coresight Research, we have been laying out our expectations and adjusting these as the context shifts, consumer behavior changes and new data points become available.

In the UK, leading apparel retailer Next published a trading update this week—and with it, a typically detailed discussion of recent trends and the company’s outlook. Below, we show how Next has modeled the possible recovery in its retail sales for the remainder of the current fiscal year. Depressingly, even by the fourth quarter—the holiday peak—the company models its sales to be down by between 17 % and 28 % year over year.

Countries and sectors will recover at their own pace—but we see Next’s recovery model as a scenario with potential applicability for discretionary retail sales more generally, and possibly of relevance to the US as well as the UK.

Graphics courtesy by Coresight Research

Coresight Research’s recovery model for discretionary nonfood retail sales in the US market characterizes the downturn and recovery for discretionary retail into several stages, including shopper caution, the potential for the release of pent-up demand and retail sales subsequently settling significantly below pre-crisis levels through the end of 2020.

We expect US discretionary nonfood retail sales to decline by 60+% during the shutdown phase (with remaining sales channeled primarily through e-commerce and stores deemed essential), driving a decline in total retail sales of between one-third and 40%. We further estimate that discretionary nonfood sales could be down by between 5 % and 20 % year over year during the recovery phase, impacted by weak store traffic and depressed disposable incomes.

Underscoring the possible slowness of retail recovery in the US are data points from our April 22 survey of US consumers: Almost 54 % of all respondents anticipate spending less on holiday this year than last, due to the economic impact of the outbreak; and 28 % expect to spend a lot less on holiday 2020 than holiday 2019.