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Profit squeeze sees European retail sector outlook lowered to negative

Publication Date: 22 May 2019 - By ReachX Team By ReachX Team
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Equity Fundamental Equity EU ex-UK UK Construction

As traditional European retailers face more hostile operating conditions, one rating agency has lowered its outlook on the sector to ‘negative’ from ‘stable’. 

In a note to clients, Moody’s said profitability of many traditional retailers is being squeezed as they cut prices to limit sales volume declines amid competition from discounters and online specialists.

The rating agency now forecasts that 40% of the retailers it rates in Europe will record lower profit this year than in 2017 and/or 2018. 

This compares with 20% when Moody's published its last industry outlook in October 2018. David Beadle, Senior Credit Officer at Moody's, said: “We expect 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. 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."

Many more “traditional retailers” will need to continue to rationalise their store portfolios in response to deteriorating profitability. 

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. Worryingly for some, over time Moody's expects to see “more examples” across the region.

Also read:

  • Why retailer New Look is looking good after improvement in leverage, 14 May, 2019
  • Implications of evolving retail landscape for Next Plc's share price, 24 April, 2019
  • Why recent upheavals make Metro Bank a short, 21 March, 2019

 

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London, United Kingdom

info@reachx.co
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