Taking into account the economic impact of the COVID-19 pandemic, Tiger Group’s Valuation Services Division has issued risk assessment guidance for asset-based lenders on a wide range of consumer goods categories.
Among the 29 categories analyzed in a study posted on the asset appraisal, disposition and financial service’s firm’s website, three (10.3 percent) were rated high risk, 22 (75.9 percent) were deemed moderate risk, and four (13.8 percent) were classified as low risk. Fashion Apparel, Fashion Accessories and Footwear were rated as the riskiest of the categories, while Food and Beverage, Pharma, Spirits and Firearms had the lowest risk.
“For the past several decades, the asset-based lending community has become extremely adept at pricing assets, such that liquidators can predict the outcome of a liquidation with a high degree of certainty,” said Ryan Davis, Managing Director of Tiger Valuation Services. “However, COVID-19 has caused governments, businesses and citizens to take unprecedented actions globally. Until most businesses re-open and assets are again traded openly in the market, asset prices will vary significantly. Still, the economic forces that impact asset pricing are known, so we can reasonably predict which categories will be impacted most and when we can expect values to stabilize.”
Under Tiger’s methodology, total risk in each category was based on a scale of 0 to 15 (with 15 the highest risk) that weighed three factors: whether demand is subject to changes in discretionary income, whether the goods are seasonal in nature, and the extent to which the category’s supply chain has been disrupted. Each of those factors was assigned a rating of 0 to 5 to arrive at the total score.
Fashion Apparel’s total risk factor of 14 reflected scores of 5 for highly discretionary goods; 4 for significant supply chain disruptions and 5 for highly seasonal goods. “In all, we look for a significant decline in asset values and projected stabilization in Spring 2021 for this category,” noted Davis. Fashion Accessories and Footwear were close behind, each with total scores of 12 and stabilization not anticipated until Spring 2021.
At the other end of the spectrum, Food and Beverage, Pharma and Spirits’ total risk rating of 4 reflected scores of 1 as non-discretionary seasonal staples, 2 for a mostly stable supply chain and 1 for goods being non-seasonal. Overall, each category’s values were viewed as stable, with projected full stabilization by Summer 2020. Firearms were close behind, with a total risk rating of 5.
Moderate risk categories were led by Automotive Parts, Building Materials, Cell Phones, Lumber & Pulp, and Office Supplies, each with total risk ratings of 6. They were followed by Books/Music/Movies, Computers, Electronics, Fabrics, Metals, Pet Supplies, Resins, and Tools/Hardware, each with a rating of 7. Scores of 8 were assigned to Appliances, Housewares, Musical Instruments, Nursery, Sporting Goods and Toys. The moderate risk categories were rounded out by Fine Jewelry, Furniture and Health & Beauty, each with a rating of 9.
To see the full details on each category, visit here.