Traditional retailers are facing increasingly hostile operating conditions, ratings agency Moody’s has announced, with profitability likely to be under pressure at some of the high street’s biggest names.
Moody’s has lowered its outlook on the European retail industry to negative from stable, it noted.
Limit Declines
“The profitability of many traditional retailers is under pressure, as they reduce prices to limit sales volume declines,” said David Beadle, VP, senior credit officer, at Moody’s Investors Service.
“We expect overall modest retail sales growth and narrowing sector margins due to the continued shift in demand to discounters and online specialists, which operate with lower margins,” Beadle added.
In the report Changing outlook to negative as operating conditions weaken, Moody’s reported that around 40% of the retailers that it rates across Europe will record lower profit this year, compared to either of the past two years.
This is an upward revision of the 20% that Moody’s expected to face lower profits, when it published its last industry outlook in October of last year.
Moody’s reported that it ‘expects annual percentage growth in online revenue to remain in the high single digits to low double digits overall, with some variance by segment and region. This growth means footfall is declining across physical store formats.’
Earnings Performance
Among the grocery retailers rated by Moody’s, Carrefour, Casino, DIA, Iceland, Marks & Spencer, Metro, Ocado and Picard are among those likely to post earnings growth of less than 2%, while Ahold Delhaize, Lenta and El Corte Inglés will post profit growth of 2% to 5%.
Performing slightly better will be B&M, Tesco and Morrisons, with profit growth of between 5% and 10%, while Russia’s X5 Retail Group is on track to report earnings growth of more than 10%.
Outside of the discounters, the retailers that are recording strong growth tend to be those that are benefitting from major cost reduction programmes, the ratings agency noted, or as a result of acquisitions – a process that may not be sustainable over time.
‘Many more traditional retailers will need to continue to rationalise their store portfolios in response to deteriorating profitability,’ noted Moody’s. ‘The administrations of UK department store chains House of Fraser and Debenhams Plc in the past 12 months are clear examples of established businesses which have struggled to adapt to evolving shopping habits.’
Moody’s added that, over time, it expects to see more examples of this across Europe.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Dayeeta Das. Click subscribe to sign up to ESM: European Supermarket Magazine.
