Many smaller retailers lack the flexibility and financial means to adapt business models to changing consumer habits, and the credit risk remains elevated.
- In 2018 demand increased for both medium sized domestic appliances (up 1.3%) and small domestic appliances (up 6.3%), while demand for consumer electronics and office equipment decreased 1.2% and 3.5% respectively.
- The outlook for 2019 is subdued, with lower consumer confidence and private consumption forecast to grow only 0.3%. A government proposal to curb Sunday shopping (by a 50% reduction of opening days) would additionally hit retailers in case of parliamentary approval.
- Retailers’ profit margins are expected to remain under pressure in 2019 after already deteriorating in 2017 and 2018. The consumer durables retail sector remains highly competitive with a high level of fragmentation, especially among small and medium-sized businesses. Weaker players with poor financial strength already disappeared, while other small businesses chose to merge with their peers in order to survive.
- It is expected that the current concentration process will continue, considering the smaller average size of Italian retailers compared to their European peers and high pressure from e-commerce on the margins of brick-and-mortar retailers. Given the increasing challenge posed by e-commerce, many smaller and mid-sized players still lack the flexibility and/or financial means to adapt their business models to changing consumer habits.
- Payment duration ranges from 80 to 90 days on average –deterioration compared to early 2018 (60 to 90 days). Both payment delays and insolvencies increased in 2018. We expect the credit risk environment for consumer durables retailers to remain challenging in 2019, with further rising insolvencies due to ongoing competitive pressure and liquidity issues of some players.
- Due to stressed market conditions, stiff competition and lower household consumption we downgraded our outlook for the business performance/credit risk situation of the industry to “Poor” in December 2018.
- Our underwriting stance for consumer durables retail is cautious, mainly for low value added distributors. Especially in the household appliances and consumer electronics segments there are many weaker players in the distribution chain that face liquidity problems and/or lack the critical mass for long-term survival in a highly competitive environment. Some may not be able to follow the evolution of consumers demand and changing consumption patterns due to weak business models.
- Exports sustain the performance of the textile segment. In the domestic market insolvency levels in the clothing and footwear segment is high.