After a particularly difficult year for US retail and apparel companies in 2017, the outlook for 2018 will be brighter overall – even for department stores – a new report says.
While the forecast by Moody’s Investors Service notes more defaults and rating downgrades are expected in the next several months, peaking at 11% in March, vice president, Christina Boni adds: “We expect defaults among speculative-grade retailers to drop sharply to 5% in October from 9% today.”
The credit rating agency says the US retail and apparel industry chalked up 11 defaults last year, compared with seven in 2009, at the height of the recession. Rating downgrades shot up 87% in 2017, while upgrades declined 43%.
In the meantime, Moody’s Liquidity Stress Indicator for retailers was up more than 3% last November from a year earlier, with the rise in the number of distressed companies signalling more defaults ahead. Once the coming tipping point has passed, however, numerous sub-sectors will be left stronger.
In the current environment of pricing transparency, cut-throat pricing and more demanding consumers, retailers must have strong balance sheets if they’re to remain competitive, Moody’s notes.
The operating profit margins of companies that have invested heavily in online channels have come under pressure in the past few years, a trend most evident among department stores, apparel and footwear sellers, office supply stores, and discount and warehouse companies.
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By GlobalDataRetailers will continue to come under intense pressure to meet the needs of customers, whenever and wherever they want to shop, and must strive to provide them with a frictionless experience between online and in-store shopping.
The critical next step for companies will therefore be improving the customer-facing aspects of their trade while also reducing costs, with large, well-capitalised players the best positioned to do so.
Moody’s conclusions are contained in the report ‘Looking beyond initial defaults and ongoing margin pressure, 2018 will be brighter.’
