Omnichannel experience will separate retail winners from losers amid coronavirus outbreak: analyst

Refinitiv Reporting Analyst Jharonne M. Martis joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the retail sector is weathering the coronavirus outbreak.

Video Transcript

BRIAN SOZZI: But staying on the retail sector, I want to bring in Jharonne Martis. She is the Director of Consumer Research at Refinitiv. Jharonne, always good to talk with you here.

And Levi's, when I talked to Chip Bergh last night, what he said to me was it was pretty startling on the state of retail. And what are you seeing right now? Do you think a lot of the big chains simply won't survive?

JHARONNE MARTIS: Well, I think that what will distinguish the winners from the losers, what's going to really set them apart is how strong their omnichannel presence is. And this is because in China, we're really seeing that a lot of these physical stores are reopening. Traffic is at the same levels as before the pandemic.

But what they're telling us is despite the strong traffic, consumers are still finalizing their purchases online. So it definitely is building a transition to digital transformation.

And we're seeing this already with online Farfetch retailer, the luxury online retailer. They are ramping up their hiring in order to meet the stronger online demands that they are seeing, LinkUp tells Refinitiv. So what we're seeing is that the retailers are going to be able to offer consumers a fast and efficient omnichannel experience, whether it be like Target, ordering online and driving through to pick it up-- those are going to be the winners during this pandemic.

ALEXIS CHRISTOFOROUS: Let's talk specifically, Jharonne, about companies that are offering sort of athleisure or sports-related gear. Because we know sports as we know it has come to a grinding halt at the professional level and elsewhere. How are these stores doing? I know my inbox is getting flooded daily from retailers like Dick's Sporting Goods and Nike, offering me huge discounts, sadly for a lot of items I just don't need in the foreseeable future.

JHARONNE MARTIS: Well, it's very interesting, because health and wellness has been on the forefront of consumers right now with everything happening. And they are actually taking advantage of a lot of the free online courses to work out at home. So yes, the discounts that you're getting-- especially at Nike, which is a little bit unusual for them, the 25% off the footwear-- is in order to lure you in to go into their app.

And then believe it or not, a lot of these shoppers are paying full price for the other athleisure merchandise. And this is what's helping, again, the retailers with strong omnichannel presence really outperform. Like Nike posted better than expected earnings a couple of weeks ago, because they've been investing for a lot of years into the digital transformation.

So it really pays off. Right now, if you want-- if you're a retailer, and you want to step up your game, it's very important for you to have a very strong marketing strategy-- a digital marketing strategy.

BRIAN SOZZI: Jharonne, a lot of these retailers the past week have started to furlough their workers. Abercrombie & Fitch, JCPenney, Macy's, you name it-- even, I believe, Dick's Sporting Goods. But will they have problems getting these workers back when the stores do reopen?

JHARONNE MARTIS: No, they won't have trouble getting the-- well, what's more worrisome is the fact of whether they will have the funds in order to stay-- keep a lot of these physical stores reopen. When we look at especially the US mall stores, the pandemic couldn't have come at a worse time for them. These US mall stores have been suffering from weak mall traffic for some time right now, and have been posting weak same-store sales. So for them, it's going to be more-- it's going to be even harder to reopen a lot of these physical stores.

Also having said that, when you look at our models, analysts have become significantly bearish on these companies. Their credit has deteriorated. And their probability of default has increased.

When you look at their discounting, they've ramped up their discounting in order to move a lot of their excess inventory. Because of the physical stores being closed, a lot of these retailers, mall stores, are sitting on excess inventory that they're trying to move by offering significantly big discounts. At the beginning of March, about 37% of their merchandise was on sale online. And this has gone up to this week up to 51%, according to StyleSage data.

ALEXIS CHRISTOFOROUS: Wow, yeah. I mean, the discounts are huge. If you're in a position to take advantage of them, you can get some really good deals right now. But I'm curious who you think is going to come out of this the strongest.

Who can actually survive this? Who has the best balance sheet, when you look at getting back to life as we know it? And also, will that company come back, though, with a much smaller retail footprint, in terms of just their brick-and-mortar presence?

JHARONNE MARTIS: Well, when you're looking at who has the biggest lines right now, right, Costco has lines out the door, Target, Walmart. And these retailers also have-- especially Walmart and Target, a much solid omnichannel presence. So these retailers are going to come strong out of it.

When you look at the luxury sector, the luxury sector in-- the luxury stores in Europe have not been offering discounts, because they're trying to stay strong to their brand image. Whereas the luxury stores in the US have started to ramp up their discounting a little bit. Also in athleisure, Nike, believe it or not, has a strong balance sheet, good cash, and is in a strong position to survive this.

So these are the retailers that we're thinking are going to be surviving the coronavirus pandemic better, are going to be faring the weather-- the storm better than others.

BRIAN SOZZI: Jharonne, real quickly, before we let you go, we have Ron Johnson, former JCPenney CEO on last week, suggesting 50% of department stores may not open. Does that sound right to you?

JHARONNE MARTIS: Yes. So when you look at the StarMine Combined Credit Risk Model, it's the department stores and other US mall stores that have the weakest score in this model, suggesting that the longer this goes on, the higher the probability of default will go up. So hopefully this all gets resolved sooner rather than later.

BRIAN SOZZI: Yeah, that much is for sure. Jharonne Martis, Director of Consumer Research at Refinitiv. Always good to talk with you.

JHARONNE MARTIS: Thank you for having me.