Moody’s: Outlook For U.S. Retail Industry Brightens

Moody’s Investors Service has changed its outlook for the retail industry in the U.S. to positive from stable.

In a recently released report, Moody’s opined that late last year U.S. retailers began to reap the benefits of investments aimed at cost efficiencies, enhancing their e-commerce capabilities and customer in-store experiences. The investments, boosted by a strong economy, should result in higher profits, Moody’s concluded.

The positive outlook is the first Moody’s afforded the U.S. retail industry since mid-2015, the ratings firm added, and reflects its expectations for fundamental business conditions over the next 12 to 18 months.

Moody’s expects discounters and warehouse clubs as well as dollar, auto parts, online and off-price stores to perform well this year, with retail gains accelerating in 2019 when department store declines begin to taper and higher growth at specialty retailers, supermarkets, apparel and footwear, and drug stores provides a lift to overall operating profit.

Growth in digital sales will continue to outpace overall retail gains as more companies harness the online channel, Moody’s noted. Although only about 15% of total U.S. retail sales, online revenue will grow to about 20% of total sales over the next five years, the firm said. will continue to dominate in e-commerce, Moody’s asserted, but brick and mortar companies will gain more online market share as they establish and refine their own platforms.

Among the downside risks for the retail industry are a tighter labor market and increasing freight costs, as well as the significant and prolonged escalation of the ongoing trade dispute between the U.S. and China..

“The positive outlook for the U.S. retail industry reflects increasing topline growth and operating profits as companies’ investments to improve both the online and in-store shopping experience continue to gain traction,” said Mickey Chadha, Moody’s vp/senior credit officer. “The improvement has been spurred by a very strong macro-economic environment, with improving consumer confidence and low unemployment.”