Moody’s Investor Service anticipates that retailer operating profit will grow 4% to 5% in 2017, with sales increases of 3% to 4% despite particular weakness in apparel and footwear, discounters and warehouse clubs, department stores and office supplies.
Apparel retailers will see growth accelerate to between 6% and 8%, supported by international and direct-to-consumer opportunities as currency pressures ease and inventories deplete, but traffic will remain “choppy,” according to the report. Consolidation will likely continue in that sector as apparel retailers seek to expand geographically and move into lifestyle categories, Moody’s said in the forecast emailed to Retail Dive.
Moody’s expects e-commerce to continue to gain momentum, with digital growth outpacing overall retail sales increases, but notes online sales will continue to represent just 8% to 9% of total sales as brick-and-mortar merchants build out their capabilities and leverage their physical store assets.
Moody’s offers a decidedly mixed view on retail for the coming year, with clear winners and losers. Home improvement stores, dollar stores, drugstores, specialty retailers and supermarkets will outperform while off-price retailers will remain stable. But other discounters and warehouse clubs, apparel and footwear retailers, department stores and office supply retailers will be “laggards” in 2017.
"Dollar stores will be among the top-performers in 2017, as cash-strapped consumers look to save money on multiple fronts," Mickey Chadha, Moody's vice president and senior credit officer, said in a statement emailed to Retail Dive. "Home improvement stores such as Home Depot and Lowe's will benefit from the continuing robust recovery of the housing market, and the subsiding deflationary pressure on supermarkets in 2017 should result in the sub-sector outperforming the broader retail industry."
Dollar stores, meanwhile, will benefit from continued woes among lower-income households, though consumer confidence among those shoppers will likely rise thanks to lower unemployment, better credit availability and modest wage growth.
Still, consumers “are wrestling with higher non-discretionary spending needs and spending on prescription drugs, healthcare, rent, auto loans and higher education is taking an ever-bigger bite from disposable income,” Moody’s warned.
Department stores will have it even harder next year, especially early on, as they’re forced to clear excess inventory in the first half of 2017 amid a drop in demand, especially in apparel. “While department store operating income will swing to a gain of 4% to 5% in 2017 after declining 11% to 12% in 2016, they will remain under pressure,” Moody's said.