Retailers Fight For Survival During COVID-19 Pandemic

The worldwide COVID-19 pandemic has caused many retailers to close their physical stores, causing a sudden increase of excess inventory. Nike alone saw an inventory spike of 7% in the fiscal quarter ending February 2020. Retailers are turning to different measures to keep business afloat.

Almost half of the online merchandise for U.S. mall stores is on sale this week. Refinitiv discovered this in a collaboration with StyleSage, which analyzes retailers, brands, online trends and products across the globe. The discount penetration (how much of the assortment is on sale) rose to 48% from 43% the previous week. The U.S. mall average percent discount is also up from a year ago. Whether this trend in the U.S. will spill over into other geographies and retailers remains to be seen.

Meanwhile, some retailers are trying to keep labor expenses under control as the coronavirus pandemic prompts a surge in layoffs and hiring freezes. To track these trends, Refinitiv partnered with LinkUp, which tracks global job listings across companies.

Health and wellness habits

During this public health crisis, wellness is at the forefront of consumers’ psyche as they continue to shop online for sports and activewear. “Consumers are looking to health and wellness now more than ever. Whether it’s to stay in shape at home or with a focus on mental health in stressful times, people all over the globe are finding ways to make sport a daily habit wherever, whenever and however they can,” according to Nike. (Source: Nike Q3 2020 earnings call, March 24, 2020).

Recently, Nike reported its Q3 2020 earnings for the period ending February 29. The retailer beat sales expectations, as revenue grew 7% over the last quarter. However, the retailer also saw a spike in costs that hurt profits, and inventory increased by 7% to $5.8 billion due to the impacts of COVID-19 in China. Recently, Nike offered a sitewide 25% discount in the U.S. to incentive digital traffic, which is not typical for them.

In a collaboration with LinkUp, which tracks global job listings across companies, Refinitiv tracked a surge in layoffs and hiring freezes around the globe. Digging into this employment dataset, there are some interesting findings when looking at the LinkUp data alongside the Refinitiv I/B/E/S Mean Revenue Estimate (consensus) and Refinitiv StarMine SmartEstimate®.

Nike cut some jobs in mid-February, slightly before the Refinitiv Consensus started getting bearish. Notice in the exhibit below how the Refinitiv SmartEstimate preceded that job scale-back. Afterward, Nike pulled even more jobs in mid-March, after analysts polled by Refinitiv had been getting even more bearish. Accordingly, Nike’s revenue for the quarter ending February 2020 came in below the company’s previous guidance.

The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the I/B/E/S mean by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. Revenue SmartEstimates® are even more predictive of surprises, with a historical accuracy rate of 78%.

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