Profitability will decline for European retailers that fail to adapt their business models as consumers move online, according to a new report from Moody's.
The ratings agency expects annual online sales to grow by around 12% in 2017-2018, while in-store sales are set to decline.
In the next five years, the ratings agency predicts that online will account for almost 20% of retail sales in the UK and 15% in Germany and France.
Retailer Pressure
Moody's says that European retailers' overall credit quality will remain static into 2018 despite strong online sales growth, due to increasing GDP and retail sector margins staying broadly stable.
"Individual retailers face pressure to adapt their business models as consumers move online in larger numbers at the expense of falling overall sales in bricks & mortar retail," said David Beadle, senior credit officer at Moody's.
"Profitability will decline for companies that fail to adapt and credit quality will deteriorate as a result," he added.
Trends
The report notes that click and collect services are an 'important and growing' part of online offerings, especially for apparel-focused retailers.
As a result, store closures will 'become more common as retailers look to offload unsustainable locations to protect overall profitability and credit quality'.
Across Europe, the proportion of grocery shopping conducted online is currently lower than the overall average, but Moody's notes that retail segments will reach online maturity at different levels.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Sarah Harford. Click subscribe to sign up to ESM: The European Supermarket Magazine.
