In an updated outlook on the U.S. retail market, financial analysts with Moody’s Investor Service said the industry is still stable despite expectations that operating income growth over the next 12 to 18 months will fall short of earlier forecasts.
Moody’s lowered income forecast is based mainly on “weakness” it sees in specialty retail and department stores, which are widely consolidating in an effort to cut costs, as well as discount retail, warehouse clubs, drug stores and even office supply stores.
“Consumer spending remains subdued,” said Mickey Chadha, a Moody’s vice president and senior credit officer.
He added that spending is weak even with some modest gains in household wealth last year, noting “lower-income households are benefiting less than those with greater discretionary income.”
Of the retailers seeing a decline in sales, department stores and warehouse clubs are expected to see profits hit hardest, with declines expected between 4 percent and 5 percent. Specialty retailers are expected to maintain flat profits.
While some have painted e-commerce as the scourge of traditional retail as of late, the sector is the main reason Moody’s is keeping its stable outlook for industry.
“Although still just 8 percent to 9 percent of total U.S. retail sales [excluding food and drug], online sales will continue to outpace overall retail growth, aiding multiple sectors as more companies harness the expanding channel,” Moody’s said.
Another “bright spot” in apparel-related retail is off-price, with companies such as TJX Cos. Inc., the operator of TJ Maxx and Marshalls and one of the only retailers to come out of 2016 with plans to open more stores.
Moody’s relatively measured evaluation of retail is also in line with a recent note from Wells Fargo, which took a 15 percent traffic boost in the first half of April as a sign that retail “trends going forward are likely to normalize.”
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