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As 2018 nears, outlook for retailers is bullish

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NEW YORK — U.S. retailers can expect operating income and sales to grow between 3.5% and 4.5% in 2018, according to Moody’s Investors Service.

Meanwhile, solid economic fundamentals suggest healthy holiday sales growth of between 3% and 4% this year, Moody’s said at the end of last month in releasing its retail sector outlook for the next 12 to 18 months. Holiday sales should get a lift from recent job gains and wage growth, Moody’s said.

Moody’s attributes some of its optimism for 2018 to expectations that large retailers such as Walmart and Target Corp. will begin to see payoffs from recent growth initiatives.

E-commerce sales will continue to gain momentum, Moody’s said.

“Although internet sales represent just 10% to 12% of total U.S. retail sales, online transactions will continue to grow faster than in-store sales, to the benefit of multiple subsectors, as more companies harness this expanding channel,” the credit reporting agency said.

While the expense of developing e-commerce capabilities has yet to be fully rationalized for most retailers, Moody’s expects growth in operating profits at the online retailers it rates to accelerate in 2018. Amazon.com dominates the subsector, Moody’s noted.

A recent report from research firm eMarkter projected that U.S. online sales will grow by 15.8% this year to nearly $453 billion and that Amazon would capture 43.5% of that total.

Moody’s noted that growth prospects for some of the retailers it rates are under pressure from structural shifts in the sector.

“Specialty retailers, discounters and warehouse clubs, department stores, and apparel and footwear retailers are exerting the greatest pressure on the U.S. retail industry, and although still a small part of our rated universe, the list of distressed names is growing,” stated Moody’s vice president Mickey Chadha. “As a result, we have lowered our forecast for industry operating income growth this year to 1% to 2% from 1.5% to 2.5% but are keeping our full-year sales growth forecast at 3% to 4%.”

Moody’s sees bright prospects in 2018 for home improvement stores and dollar stores as well as for online retailers. The firm also foresees recent declines at department stores beginning to taper off next year, and improved performance in specialty retail, footwear and apparel.


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