MEDIUM RISK for entreprises
Insolvency data for Q1 2019 suggest a worsening severity, which could have serious effects on providers along supply chains.
After hitting a 10-year high in 2017, global average Days Sales Outstanding fell by -1 day to 65 days in 2018, a sign of companies taking a cautious approach to their clients’ payment behavior.
Mobile sales are expected to represent around 40% of e-commerce sales in 2018 and 45% in 2019.
In 2019, despite the softening of global economic growth, we expect global retail to keep on growing, thanks to the resilience of private consumption in most of the top markets. De facto, private consumption momentum is expected on the upside in the US (from +2.6% in 2018 in volume terms to +2.7% in 2019) and Japan (+0.4% and +0.9% respectively), and stable in China (+5% growth) as well as in the Eurozone (+1.3%), despite some weakening in Italy (from +1.5% to +0.9%) and Spain (+2.4% and +1.9% respectively).
In this context, aggregate retail revenue is forecasted to keep on increasing in 2019. Our Global Top 35 companies – which compiles the financials of major players from the US, China, Japan and Europe - would see another +8% increase after two steady consecutive years at +9%. At the same time, aggregate profitability, at EBITDA and net revenue levels, would still register a double-digit growth (+12%) and capex would increase by +7%.
Yet, the outlook is less favorable for 2020, in particular in the US, and this aggregate view masks uneven performances by companies due to intense competition, notably in mature western markets. The growing market share of e-commerce (currently at 10% in the US or USD525bn) is a key driver of transformation, but not the only one. Changes in consumer preferences and nimble new entrants are leading to new store formats, multiple omni-channel propositions, changes in the product and pricing mix and the emergence of smaller niche brands.
In this context, all retailers are being forced to adapt, notably by significant investment in e-commerce and new technologies, lowering operating expenses, saving costs in the supply chain and testing transformations: Some brick-and-mortar companies are selling on third party-websites, some one-line retailers are opening urban stores. Yet, all companies do not have the capacity to adapt: The sector will continue to register store closures and bankruptcies amongst old fashioned SMEs but also major companies. In 2018, the retail sector posted 51 major bankruptcies (companies with a turnover exceeding EUR50mn), including 24 cases in Western Europe and 15 in the US, despite the already impressive list of 34 cases over 2015-2017.
Contact Euler Hermes
Economic Research Team
Sector Risk Analyst