Moody’s ups outlook for US retail from “stable” to “positive”

By

Robin Driver

Published
Oct 27, 2018

Moody’s Investors Services announced on Thursday that it has revised up its 2018 forecast for the US retail industry, as retailers begin to see the positive effects of investments made towards improving cost efficiencies and customer experience.

 
The agency’s outlook for this year has been upgraded from “stable” to “positive” and now expects the retail industry’s sales growth to be between 4.5% and 5.5%, compared to a previous forecast of 3.5% to 4.45%. Income growth is now predicted to be in the range of 4.0% to 5.0%, also up from 3.5% to 4.5%.
 
“The positive outlook for the US 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,” explained Moody’s Vice President and Senior Credit Officer Mickey Chadha in a release. “The improvement has been spurred by a very strong macro-economic environment, with improving consumer confidence and low unemployment.”

Online sales growth is still expected to outstrip overall growth in the sector, with e-commerce sales, which currently account for 15% of all US retail revenues, predicted to make up 20% of this total within the next five years.
 
Perhaps unsurprisingly, Amazon’s domination of online retail looks set to persist for the foreseeable future, but Moody’s also predicts that predominantly brick-and-mortar retailers will be able to chip away at the Seattle-based company’s formidable market share as they set up their own platforms.
 
Dollar stores, off-price retailers and e-commerce platforms are also all expected to perform particularly well this year and progress is forecast to accelerate in 2019 as department store losses dwindle and improved growth at specialty retailers, as well as at apparel and footwear stores, buoys the industry’s overall operating profit.
 
With the end of the year approaching, Moody’s expects the holiday season to provide solid sales growth of between 5% and 6%.
 
The outlook also identifies a number of risks currently looming over the US retail industry, including a tighter labor market and growing freight costs, not to mention the threat that the ongoing trade war between the US and China poses to American retailers importing significant amounts of merchandise from the Middle Kingdom.

Subscribers to Moody’s research can access the agency’s latest retail industry outlook report on its website.