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Asda-Sainsbury's Faces Unpredictable Competition Review

The GBP15 billion tie-up between UK supermarkets Asda and Sainsbury's announced today is likely to be subject to an unpredictable review by the Competition and Markets Authority. The move will create the largest player in the highly competitive and mature UK grocery market.

Amazon HQ2 May Have Some Long-Term Credit Impact

The projected 50,000 jobs the regions will gain varies from a minimal impact on the New York-Newark-Jersey City MSA, which has a labor force of more than 10 million, to a more significant 7.4% of the labor force in Raleigh, North Carolina. The increase in salaries paying more than $100,000 per year varies as well.

rating action

First Time 'A+' IDR to Amazon; Outlook Stable

The Rating Outlook is Stable. The rating reflects Amazon's leading positions in global e-commerce and cloud computing services, close customer connections, strong FCF generation and expectations of adjusted leverage trending around 2.0x.

Nine West Boosts Retail Loan Defaults to $5.9 Billion

Nine West Holdings's Friday bankruptcy propelled the trailing 12-month institutional loan retail default rate to 8.6% compared to the overall rate of 2.7%. The filing lifted the TTM total retail term loan volume to $5.9 billion.

rating action

Downgrade: Sears' IDR to 'RD'; Upgrades IDR to 'CC'

Sears' interest expense, capex and pension plan contributions are expected to total $800 million in 2017 and 2018. Cash burn of $1.2 billion - $1.3 billion annually is expected, assuming $250 million in annual working capital benefit from store closings and fewer inventory buys, prior to the proposed debt exchange.

More Pressure on UK Retailers in 2018 Than European Peers

UK traditional retailers' market share is challenged by online sales that continue to grow strongly, adding to costs as they invest in online platforms and logistics to compete. Those risks are magnified for highly leveraged companies as they are attempting to implement turnarounds in a weak market environment and with limited capacity to invest in technology and store revamps. 

No Rating Impact from Unilever's Proposed Corporate Structure Simplification

Plans to create a new Netherlands-based holding company, Unilever TopCo NV, for the Unilever group that will directly own Unilever plc and, indirectly, Unilever NV, (together Unilever) will not affect the group's operating profile and have no impact on its ratings. The IDRs of Unilever plc and Unilever NV are both 'A+' with a Negative Outlook.

What to Watch in 2018

Outlook Compendium for Retail

rating action

Downgrade: New Look's IDR to 'CC'

The downgrade of the IDR reflects uncertainty over the sustainability of New Look's capital structure given a sharp deterioration in performance, evidenced by operating losses and accelerating cash outflows from Q1 to Q3 FY2017/18 (ie the first nine months in the 12-month financial year ending March 2018). 

rating action

Downgrade: Mattel's IDR to 'B+'; Outlook Negative

The downgrade reflects our expectation of a significantly slower than previously anticipated recovery in Mattel's EBITDA and FCF following weaker than projected 2017 results. EBITDA in 2018 could remain near 2017 adjusted levels of around $300 million and improve toward the low-$500 million range by 2020, compared with Fitch's prior expectations of EBITDA around $650 million in 2020.

Tobacco Results Highlight Next Generation Product Shift

Recent tobacco company results highlight the shift towards Next Generation Products. This shift will help cushion the industry from weaker organic revenue growth from cigarettes, but will increase risk and uncertainty as cash flow generation becomes less predictable. 

US Retail Challenges Push CDS Implied Ratings Below Fitch's

Investor sentiment has turned increasingly negative on many US retail issuers in recent years, as the sector faces a number of challenges, including changing shopping habits and the rise of online and discount models.

Secular Shifts Constrain Performance for Many Leveraged Retailers

Increased online incursion, ongoing spending shifts to consumer services, and a consumer emphasis on low-priced retail channels will continue to constrain the overall performance of many leveraged retailers and raise questions of viability for some, despite 3%-4% growth in retail spending.

2018 outlook

European Food Retail Prospects Outshine Non-Food in 2018

European food retailers are showing signs of recovery in their core markets, supporting our stable outlook for the sector in 2018. In contrast, the sector outlook for non-food retail remains negative due to the significant challenges posed by fast-changing consumer behaviour, rising costs and intense competition eroding profitability. More Global 2018 Credit Outlooks

Complimentary Research

Shock Scenario: US Retail

This report considers the potential credit impact of a hypothetical rapid expansion of, Inc.’s market share in apparel retailing, resulting in sharp declines in sales and margins for US apparel retailers.

Liquidations Common, High First Lien Recoveries in US Retail Bankruptcies

Sharon Bonelli, Senior Director, Leveraged Finance: "Sometimes the operating challenges that cause a retailer to spiral into distress in the first place follow them into the bankruptcy process, creating obstacles to turning around a fallen brand." 

Credit Hotspot: Brexit

Latest: Brexit Impact Gradually Mounting for UK Corporates

Market Share in Focus as Retail Competition Heats Up

The retailers best positioned to maintain or grow their market share are those with sufficient scale, cash flow generation and financial flexibility to invest in its business, an effective operating strategy and a right-sized physical footprint for its category.

Amazon Retail Gain Could Impact REITs & CMBS

Fitch’s retail, REITs and CMBS analysts discuss what would happen to these sectors if Amazon hypothetically gained significant market share in apparel.

Related: Severe US Retail Shock Could Fan Out to REITs, CMBS

Accelerated Changes to US Food and Beverage Landscape

Shifting US consumer preferences is changing the food and beverage landscape, accelerating trends like the growth of private label and artisanal brands and share losses for casual dining restaurants.

rating action

Downgrade: Starbucks to 'A-/F2'; Outlook Stable

The downgrade reflects Starbucks' change in financial policy and commitment to returning $15 billion of cash to shareholders via dividends and share repurchases over the three year period ending fiscal 2020 (September), up from $9 billion returned during the previous three years. 

rating action

Michael Kors' Sr. Unsecured Notes Rated 'BBB-', Outlook Stable

This reflects the company's long-term growth trajectory, its strong positioning in the US handbag and small leather goods market, and its conservative financial policy of targeting a 2.0x-2.25x leverage range (Fitch-adjusted equivalent is 2.5x to 2.75x). The rating also considers the fashion risk inherent in the accessory and apparel space, illustrated by Michael Kors' recent topline weakness

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