The US Softlines industry store count has declined to 102,237 stores from a peak of 123,894 in 2015
Softlines industry brick & mortar stores were under pressure before COVID-19:
The Softlines industry store count fell 4.4% year over year in 1Q20. This is the 5th lowest rate in at least ten years and includes a 4,681 net store count decrease. Plus, the data shows store counts are falling across 8 of 9 Softlines subsectors (e.g. Dept. Stores, Children's Clothing, Jewelry & Accessories). Importantly, the data captures the trend only through March. Therefore, COVID-19 had very little impact on these numbers.
We think the pandemic will amplify brick & mortar retail problems...
Softline brick & mortar retailers were struggling with profitability before the pandemic. The rise of COVID-19 likely makes a very difficult situation even tougher. Just in the last few weeks, two US softlines retailers have filed for bankruptcy. In addition, our analysis shows 13 other public retailers who collectively represent $30B in sales, 11,000 stores, but essentially no EBIT. The average market cap for these companies is just $75M, which to us implies the market does not sense a bright future for these retailers. We think the pandemic will cause a large number of Softlines stores, both public and private, to permanently close
....and cause Softline earnings to fall well below consensus:
Widespread permanent store closures would probably be highly disruptive to the entire industry. We envision an unprecedentedly large build-up of excess inventory putting even more pressure on Softline industry gross margin and take 4-8 quarters or more to clear. We note April apparel consumer price index (CPI) fell 4.7%, one of the largest drops ever, likely based only on the inventory build since mid-March. We think broad-based permanent store closures would extend the timing of the recovery into CY21 and possibly CY22. This would be past what the market expects and a key reason our EPS estimates are well below consensus for most stocks we cover. We continue to expect pressure on Softline stock prices.
UBS Evidence Lab data addresses a pivotal industry question:
UBS Evidence Lab assembled over 10 years of industry physical footprint data to track US Softlines brick & mortar retail's store count in order to help determine when Retail disruption may end. The answer to this question likely has large P/E implications. As of 3/31/20, this analysis includes 500+ Softlines retailers who operate 102,000+ stores.
What is the UBS Evidence Lab Market Quality Analysis?
The UBS Evidence Lab Market Quality Analysis is a suite of analysis techniques to measure important environmental factors facing a business including competition, cannibalization, and addressable market quality. The UBS Evidence Lab leverages a global database of 70+ million business rooftops that is thoroughly cleansed for localization accuracy, ownership, industry, birth and death dates and other key features for each rooftop. Location counts are validated against publicly available data from relevant issuer regulatory filings and websites. The UBS Evidence Lab using advanced geospatial analyses enhanced these rooftops with proprietary metrics that explain the quality of a company's physical footprint