UK retailers’ earnings growth potential will be lower than that of their continental peers next year on the back of Brexit uncertainty, according to new research.
Improved economic prospects in most European countries will support “solid” revenue and earnings growth and underpin the stable outlook for the European retail sector into 2018, says Moody’s Investors Service in a report published yesterday (17 October).
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Yet according to the firm’s ‘Retail – Europe: Earnings growth supports stable outlook but UK growth to lag, specialists to outperform’ report, UK GDP growth is expected to be lower than in other large European economies as the weakness of the pound has led to inflation outstripping wage growth, with the resultant squeeze on disposable incomes in turn curbing consumer confidence.
Stripping out the drag effect of the UK, median retail earnings growth in continental Europe jumps to 5.2% in 2018. Real GDP growth will remain at relatively high levels and unemployment will continue to decline.
“A rosier economic outlook for the majority of countries in Europe will offset fierce competition in many segments of the region’s retail sector, underpinning median revenue and earnings growth of 3% and 4.1%, respectively, and supporting the stable outlook on the sector into 2018,” says Vincent Gusdorf, vice president, senior analyst at Moody’s.
Meanwhile, earnings at specialist retailers’ (non-food/non-apparel) are tipped to grow 6.3% in 2018, outperforming their food (3.6% in 2018) and apparel (3.2% in 2018) counterparts.
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By GlobalDataAnd while some specialists will benefit from well-entrenched market positions and favourable industry trends, others will expand aggressively or cut costs. In contrast, Moody’s says food and apparel retailers will post “mixed results” depending on their operating markets.
Consumers’ search for convenience and value has fuelled the significant growth of online shopping over recent years, Moody’s adds. The quest for value means that, in bricks-and-mortar, both discounters and specialists across segments will continue to win market share from mid-market generalists.
