Retailers, Specialty Softlines Retail - UBS Evidence Lab inside: Industry Outlook - More Bad News Likely Ahead

The market is wondering if US stimulus checks can provide an apparel sales lift. We think it's unlikely. New market research shows 80% of Americans would use a stimulus check to increase savings, pay down debt, or cover everyday expenses.

22 Apr 2020

Market research shows 80% of Americans say they would use a stimulus check to increase savings, pay down debt, or cover everyday expenses

Source: UBS Research

The figure charts responses to market researchers' question, "If you received a direct payout from the U.S. government for the stimulus bill, how would you spend it?" Options include savings, everyday expenses, pay down debt, home improvement, other, major purchase (TV, car, etc), splurge purchase, vacation. 80% of respondents would use it for increasing savings, paying down debt, or everyday expenses.

We expect US Softgoods spending to remain very weak through July:

UBS Evidence Lab's US Retail Apparel Consumer Spending Intention Score reveals a dramatic drop in US consumer spending intentions. Based on this score, we anticipate industry sales growth rates fall into the low-to-mid 40% range through July. The market is wondering if stimulus checks can provide a meaningful apparel sales lift. We think it's unlikely. New market research shows 80% of Americans say they would use a stimulus check to increase savings, pay down debt, or cover everyday expenses. Only 4% said they would spend the money on a "splurge" purchase.

The UBS Evidence Lab has a proprietary US Softlines Spending Score:

The team frames US clothing and accessory store sales over the next 90 days. To do this, UBS Evidence Lab first creates an Apparel Spend Intention Score. The score is based on market research revealing US consumer spending intentions. The team then employs a 2-phase time series modelling technique using an auto regressive integrated moving average (ARIMA) process to analyze the relationship between market research and US Census Bureau data.

We are also getting more pessimistic about what happens after July:

The consensus believes sales growth rates get meaningfully "less bad" as stores start reopening in May. However, our view is consumer confidence, not store reopenings, will be the key apparel sales lead indicator. Importantly, new data suggests consumers are preparing for a long economic slowdown and this is coinciding with more cautious apparel spending attitudes. The market research shows 46% of consumers think it will take at least 1 year for the economy to recover. Next, just 8% disagreed with this statement - "Buying items like clothing... are not as important to me at this time". Lastly, only 41% agree with this statement - "I will go back to the way it was before the pandemic".

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