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Outlook gloomy for department stores, says Moodys

Traditional department stores will continue to “struggle” in 2018 and an improvement in credit quality is “unlikely” following a weak Christmas, ratings agency Moody’s has said.

Hof ww

House of Fraser womenswear

Following a mixed bag of Christmas trading results, Moody’s said the steady growth of online shopping was highlighted by soaring sales at etailers and the sales split between stores and online by traditional multichannel retailers – which was heavily weighted towards online.

The earlier start and highly promotional run up to Christmas, prompted by Black Friday, encouraged shoppers to expect discounts and “put margins under pressure at a time of the year which has traditionally been highly profitable for many retailers”.

The report said: “The largest [retailers] are all trying to adapt to this with plans to reinvigorate their offerings, while cutting costs at the same time. Long term success is not a given and in the meantime we believe profitability will remain under pressure for many.”

Moddy’s said it expects profit to be “broadly stable” for Next, Marks & Spencer and Matalan in 2018.

However, it expects lower profitability for House of Fraser and Debenhams: “We believe the traditional department store model will struggle most in the evolving UK apparel retail landscape.

“In this context the strategies being pursued by HoF and Debenhams to seek new and fresh ways to drive footfall and to improve efficiencies in stores and in the supply chain are logical. However, a lack of flexibility in the lease profiles of their store estates will nevertheless continue to limit the pace of any transformations.”

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