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Moody's downgrades retail sector

The European retail industry is set for a “negative” 12-18 months, after Moody’s Investors Service demoted its outlook from stable to negative.

It cites several reasons for the lowered rating, including increasing demand for discounting, rising online sales and declining footfall.

Retail sales are forecast to grow “modestly” over the next year and a half, but Moody’s vice-president – senior credit officer, David Beadle, warned the profitability of many traditional retailers is under pressure.

“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,” he said.

He also advised bricks-and-mortar retailers to adapt to changing consumer habits and “rationalise” their store portfolios, citing House of Fraser and Debenhams’ administrations as examples of established businesses who have struggled to do so.

Looking ahead, Beadle concluded: “We would consider returning to a stable outlook if we expected retail sales volumes and values to grow steadily and sector margins to stabilise.

“A stable outlook would also require more supportive economic conditions than we currently forecast.”

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