As the 2015 holiday shopping season nears crunch time, major US retailers continue to offer deep discounts to encourage big holiday spending. Bloated inventories and an unusually warm winter, along with uncertainties around consumer preferences, have created challenges for the retail sector. Meanwhile, some consumers wait for even better deals, putting increased pressure on retailers to create even bigger discounts.
Despite the broad slowdown among retail sales, some retail segments are performing better than others. Dun & Bradstreet, which has an extensive commercial database of over 70 million commercial records on US businesses, has identified the retail segments that are best positioned to offer deep discounts. In the analysis D&B has noted the differences among payment performance and commercial credit risk of key retail segments for brick-and-mortar stores only.
Current Top Performers
Overall, general merchandise stores, which include department stores and warehouse clubs, are recording the best payment performance out of the national retail category, according to the latest data available (November 2015). Payment performance was ranked using Dun & Bradstreet’s Paydex index — a dollar-weighted numerical indicator that signals how quickly a firm pays its bills based on trade data and trade experiences.
The average Paydex score for the general merchandise category (73) remains nearly three percentage points above that for the second-highest category, health and personal care stores (70.3). These two categories are followed by sporting goods and hobby stores (69.9), electronics and appliance stores (69.6), and clothing and clothing accessory stores (68.9).
Payment performances among general merchandise stores remain above the national average (70.3), regardless of the retail category. General merchandise stores are performing well as an aggregate, and payment performance suggests that department stores may be more likely to offer additional discounts compared to other retail categories in the coming weeks and into 2016.
Extreme delinquency risk, or the likelihood that an establishment will pay in a severely delinquent manner, is also comparatively the lowest among the general merchandise retail category. On a national level, establishments within the general merchandise category look to be the most flexible and best positioned to negotiate prices or sales from customers or offer even deeper discounts.
Future Industry Health
Insight into future discount offers and the health of retail segments also can be gleaned by analyzing the pace of payment performance change and the change in risk over the prior five years.
Since Q1 2011, establishments within the health and personal care category, which includes cosmetics, beauty supplies, and perfume stores, have recorded the sharpest improvement in the Paydex index, rising 4.4%. This is followed by electronic and appliance stores (4.2%), sporting goods and hobby stores (3.2%), general merchandise stores (3%), and clothing and clothing accessory stores (2.8%).
Electronics and appliance stores (10.5%) and health and personal care stores (8.2%) recorded the largest improvement among Dun & Bradstreet’s Commercial Credit Score, or the likelihood a company will pay severely delinquent at over 91 days past due.
If this marked improvement for the personal care and electronics establishments continues, these industry segments may build upon improving momentum and will be able to extend new or larger offers to customers.
Payment performance and risk varies significantly by geography as well. General merchandise stores remain the top retail segment for payment performance across most of the US, but other industry segments stand out.
In Vermont, health and personal care stores average high Paydex levels (74.99), while in the Dakotas sporting goods and hobby stores are recording current payment performance above the national average. Don’t expect further discounts among electronics and appliance stores in Maryland and Nebraska, or among clothing and clothing accessory stores in South Carolina and Idaho, as payment performance among retailers in these states remains slow and noticeably below the national average.
While specific retailer discounts may vary greatly depending upon specific store needs or goals, retailers in the general merchandise category remain the best positioned as an aggregate to survive this discount holiday season.
Adam Morehouse is a Macro Analytic Consultant on D&B’s Global Data, Insight & Analytics team. He covers parts of the Asia Pacific region as a contributor to D&B Macro Market/Country Insight Products. He also contributes to D&B’s monthly economic tracker, adding both commentary and analysis. Adam holds a BBA in finance from James Madison University in Harrisonburg, Virginia, and an MBA in financial management from Pace University in New York City.