U.S. retail sales recorded a third straight month of declines in December 2020 as a surge in coronavirus cases and renewed COVID-19 restrictions continued to weigh on consumers throughout the holiday season.

The dismal results underscored the need to accelerate vaccine rollout in the U.S. and reopen large swaths of the economy that were restricted or closed by the virus, experts said.

Retail and restaurant sales in December 2020 dropped by 0.7% compared to the prior month, following a revised 1.4% decline in November 2020. The forecast by economists polled by Econoday called for a 0.1% decrease in December sales.

"The December retail sales results were an absolute disaster. ... Consumer spending slowed down sharply in November and December as the virus gained ground and forced closures of stores and restaurants in many key states. The good news is that these losses are likely to be reversed once the pandemic abates, but in the meantime, things look like they were worse than I had previously thought," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note.

Meanwhile, five more retailers entered bankruptcy proceedings during the period from late December to early January following a record year for bankruptcies in the sector.

Retail sales

U.S. retail and food services sales dropped in December to a seasonally adjusted $540.92 billion, according to a report released Jan. 15 by the U.S. Census Bureau.

"[The] data suggest that spending momentum has faltered into the holiday season, in line with rising virus and policy uncertainty and weakening job creation," Lydia Boussour, senior U.S. economist at Oxford Economics, said in a note. "There were plenty of culprits ruining the holiday spirit, including a frightening health situation, rising layoffs, and a looming lapse in jobless benefits."

Experts said controlling the spread of the virus would be key to recovery.

"[V]accine related logistics need to be fixed as soon as possible allowing for markedly more inoculations so that the US can reach herd immunity," Quincy Krosby, chief market strategist at Prudential Financial, said via email. Boussour also said she expects the recovery outlook to brighten in spring as vaccine diffusion accelerates.

Lindsey Piegza, chief economist at Stifel, said the continued deterioration in consumer activity underscores the need to safely reopen the economy. "Of course, while the vaccination process underway is the best and fastest way to return to some semblance of normal, at least some long-term structural changes may be adopted going forward if there remains a lingering hesitancy to interact in the market or with large crowds even after it is declared "safe" to do so," she said in a note.

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Sales at nonstore retailers, a category that includes e-commerce companies, posted the sharpest sales decline in December at 5.8% to $80.56 billion. Receipts at food services and drinking places fell 4.5% to $51.17 billion, while furniture and home furniture store retailers posted a 0.6% drop in sales to $10.11 billion.

Meanwhile, sales at gasoline stations jumped 6.6% from November to $37.79 billion. Spending at clothing and clothing accessories stores rose 2.4% to $19.02 billion in December.

In a separate Jan. 15 report, the National Retail Federation said sales during the November to December holiday season surged 8.3% year on year to $789.4 billion, exceeding the trade group's own expectations. NRF calculates its numbers differently than the Census Bureau, excluding automobile dealers, gasoline stations and restaurants to focus on "core retail," an NRF spokesperson told S&P Global Market Intelligence in an email. The difference in figures is "particularly significant this year given less driving, lower gasoline prices and closed restaurants," the spokesperson said.

Holiday sales results were a mixed bag for U.S. retailers. Minneapolis-based Target Corp. said comparable sales in the combined November-December period grew 17.2% year over year, while comparable sales during the holiday season at consumer electronic retailer GameStop Corp. rose 4.8%.

Urban Outfitters Inc., meanwhile, said comparable retail segment net sales declined 9% during the holiday season.

The retail industry is closely watching for any new developments in terms of stimulus. As part of his newly released $1.9 trillion economic relief plan, U.S. President-elect Joe Biden would include $1,400 checks to many Americans below a certain income level.

"President-elect Biden’s ambitious fiscal agenda could further juice up household spending during the delicate vaccine rollout phase," Oxford Economics' Boussour said.

Consumer prices

Consumer prices jumped 0.4% in December following a 0.2% increase in the month prior, according to a monthly report released by the U.S. Bureau of Labor Statistics. Prices rose 1.4% year over year before seasonal adjustment.

Gasoline prices, which accounted for more than 60% of the overall increase in prices, saw an increase of 8.4% in December. Core CPI, which excludes food and energy prices, also grew 0.1%.

Apparel prices jumped 1.4% during the month as prices for men's and boys' apparel rose 2.3%. Footwear and jewelry prices were also up 0.3% and 2.8%, respectively.

Bankruptcy

Five Market Intelligence-covered U.S. retail companies went bankrupt during the period from late December to early January. In 2020, the retail sector reached its worst levels of bankruptcies in 11 years with 52 filings.

The bankruptcy count includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and secondary classification of retailing. Market Intelligence's analysis is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are at least $2 million. Private companies without public debt must report at least $10 million in either assets or liabilities at the time of filing.

Commemorative Brands Inc., which offers caps and gowns, high school graduation rings and educational resources, had an involuntary petition under Chapter 7 filed against it Jan. 14.

Womenswear retailer Christopher & Banks Corp. on Jan. 13 filed for Chapter 11 bankruptcy and said Jan. 14 that it could close "a significant portion, if not all, of its brick-and-mortar stores." The company, previously on Market Intelligence's vulnerability list, also said it is in talks with potential buyers for its e-commerce platform.

Farm, home and outdoor products retailer Tea Olive I LLC filed a voluntary petition for reorganization under Chapter 11 on Jan. 10, listing both its assets and liabilities in the range of $50 million to $100 million. Michigan-based furniture retailer Loves Furniture Inc. filed a Chapter 11 petition Jan. 6.

Kranos Corp., which does business as Schutt Sports Inc., filed a petition for liquidation under Chapter 7 on Dec. 18, 2020. The Illinois-based company manufactures and sells football, softball and baseball protective equipment.

Employment

The retail sector gained 120,500 jobs last month, representing a monthly gain of 0.8%, data from the U.S. Bureau of Labor Statistics shows.

Jobs at nonstore retailers rose 2.56%, or 14,300, to total 572,200. General merchandise retailers posted an increase of 1.82%, or 56,700 jobs, to 3.2 million jobs.

Health and personal care stores added 9,800 jobs during the month, up 1% from November to 987,900 jobs.

Electronics and appliance was the only retail category that posted a decline in employment in December 2020 as jobs fell 0.11% to 445,900 jobs.

Employment in the retail sector is still 411,000 jobs below its February 2020 level.

Vulnerability

A January analysis of the probability of default scores identified 15 public retailers for Market Intelligence's vulnerability list, which involves companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and a secondary classification of retailing.

The one-year probability-of-default score among these companies ranged from 31.2% to 12%, and their corresponding implied credit scores were "ccc-" to "ccc+."

Health supplements provider Merion Inc. topped the list with a probability of default score of 31.2%, followed by Sunstock Inc., which buys, sells and distributes precious metals and primarily gold, with a score of 28.2%.

Merion and Sunstock did not respond to requests for comment.