July 09 - With growth stagnant and competition heavy, market share defensibility is a critical consideration when assessing U.S. retail credit profiles, according to Fitch Ratings in a new report.
This is particularly true for the department store sector which has been in a secular decline since the mid-1990s.
'Department stores are one of the few major retail subsets to actually shrink in size in recent years.' said Senior Director Monica Aggarwal. 'As a result, industry participants will remain under pressure to grab market share in order to sustain healthy profits and cash flow.'
Kohl's has benefited the most from market share consolidation. Kohl's has grown its share to approximately 10% in 2011 from 2.6% in 2000. In contrast, the rest of the sector by and large has remained flat to lower. Fitch expects Kohl's market share to be stable over the next 24-36 months. Other department stores likely to see strong share gains are Nordstrom and Macy's.
Conversely, Sears has been under the most pressure. Sears has lost nearly 20% ($9 billion) of its domestic revenue base in the last five years alone. Other retailers that Fitch is concerned about from a credit standpoint are J.C Penney and Bon-Ton.
After outperforming in 2010 and 2011, Fitch projects overall growth among rated department stores, which currently account for nearly 60% of total industry volume, to level off this year.
The special report details industry dynamics at play and includes full rating profiles on each of the nine department store retailers rated by Fitch. Each company report includes Fitch's assessment of the business and financial profile, key selected financial data, a detailed debt organizational chart, and covenant analyses.
'Department Stores: Clamoring for Share,' is available at 'www.fitchratings.com' or by clicking on the above link.
Link to Fitch Ratings' Report: Department Stores: Clamoring for Share