Dive Brief:

• Fitch retail analysts issued a stable outlook for retail in 2021, anticipating that "a number of factors specific to 2020 that have produced vastly divergent trends across retail" will be "unwound" over the next year.
• As "the impact of the pandemic dissipates," many retail companies will end 2021 "with operating trajectories similar to prepandemic levels," the analysts, led by Fitch Senior Director David Silverman, wrote in an emailed report. 
• But with uncertainty over the pandemic's trajectory and the timing of vaccine distribution, as well as individual retailers' operational health, Fitch has a negative outlook for its portfolio of retail companies it covers.

Dive Insight:

"Uncertainty" and "unprecedented" are more than cliches to describe the year — they are bywords for 2020. Without an experience quite like it in recent history, the pandemic and its economic ramifications have played out in sometimes surprising ways. 

And it hasn't been all bad for retailers. Fitch estimates that between $400 billion and $500 billion in consumer spending on experiential services like travel and dining went to physical goods. That's likely to reverse next year as the pandemic subsides, according to the analysts. But at the same time, the roll out of effective COVID-19 vaccines is likely to improve consumer health as shoppers return to their routines. 

Not all sectors of retail got a bump from spending transferred from experiences. "Some categories, namely apparel, accessories, jewelry and cosmetics, remain weak, likely due to lack of interest given reduced social gatherings," Silverman and his team write. That trend, too, could reverse with control of the pandemic.

However, the analysts caution that those struggling categries may not see a boom. "While weaker categories like apparel could grow relative to 2020, Fitch expects sales trends to remain below prepandemic levels, particularly as pandemic-related behavior is likely to sustain early in the year," the Fitch analysts said in the report. "In total, this could yield modestly positive U.S. retail sales growth in 2021."

Along with changing retail dynamics, the pandemic has also accelerated trends in place for years, such as mass closures of stores at enclosed malls and e-commerce growth. On the latter, Fitch notes, based on U.S. Census Bureau figures, that e-commerce sales increased 30% in the first half of 2020 and reached 20% penetration of overall retail sales.

Consumers have also been taking advantage of omnichannel services this year like curbside and in-store pickup. Some retailers, including Target, have posted triple digit growth in sales through these channels. 

"Given the significant expense required to build and maintain omnichannel models, strong incumbents with healthy cash flows should continue to benefit," the Fitch analysts said.