Is the retail sky falling? – RetailWire
May 19, 2022
Moody’s Investors Service on Tuesday lowered its outlook for the U.S. retail and apparel industry from stable to negative.
The risk assessment company found many risks for retailers. Inflation, geopolitical developments, supply chain disruptions and lower demand are expected to erode margins and earnings. Moody’s sees this scenario playing out across all retail and apparel sub-sectors.
“Retailers are facing deteriorating business conditions as they grapple with shipping delays, product shortages and inflation,” said Christina Boni, senior vice president of Moody’s Investors Service. statement. “We expect sales to increase 2-4%, while operating profit is expected to decline 1-3% over the next 12-18 months.”
The first quarter results published this week by Target and Walmart suggest that Moody’s forecasts may have merit. The two retail giants posted modest sales gains while reporting that operating margins had fallen well below their own expectations.
Moody’s expects higher prices for food, fuel and other necessities to weigh on consumer spending in the coming months. He said retailers who have faced high demand, product shortages and increased shipping costs will now also have to plan for lower demand.
The pain will be distributed between the players, big and small.
Moody’s said online will be the biggest underperforming category, with Amazon.com and others facing rising costs and excess capacity as product demand returns to land. Big box retailers, department stores, food and gas will also feel the pain.
Retailers on Moody’s list of exceptions include auto and auto parts, home improvement, off-price and discount stores. All four segments “have growth potential in the coming months,” according to the firm.
According to Moody’s, one of the biggest challenges retailers will face will be their ability to continue to pass on price increases to their customers. The firm sees Russia’s continued attack on Ukraine creating economic realities that could undermine the US economy, which currently has low unemployment and high savings rates.
Supply chain factors remain a concern for Moody’s. He points to potential constraints, in particular ongoing negotiations between west coast ports and dockworkers over a new employment contract. The current one expires July 1.
DISCUSSION QUESTIONS: What outlook do you see for the retail industry for the next 12-18 months? What factors are likely to have the biggest impact on the performance of the retail sector during this period?
“Retailers who have worked to break down internal silos, increase supply chain flexibility and consolidate physical formats will survive, if not thrive.”
“The retail sky is not falling, but it will fragment into smaller offline footprints, highly organized reduced inventory, and greater product differentiation.”