Moody's Labels European Retail Market 'Stable' For 2017

By Steve Wynne-Jones
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Moody's Labels European Retail Market 'Stable' For 2017

Credit rating agency Moody's 2017 Outlook for the European retail sector has labelled it 'stable' in the new year, with expected moderate sales and earnings growth.

David Beadle, vice president and senior credit officer at Moody’s, said:

“Anticipated retails sales growth of 2%-3% in most countries and average earnings growth of more than 4% for rated retailers underpin our stable outlook for Europe’s retail sector into 2017. Rising costs on the back of sterling weakness make the outlook for UK retailers, especially clothing, more challenging."

He predicted that discounters and niche market specialists will continue to grow market share, and that strong e-commerce sales will persist.

Moody's forecast a 'relatively strong' average EBITDA growth forecast for rated retailers, with an average growth forecast of 4.3% for retailers such as Carrefour and DIA. Expansive store roll-out plans and cost synergies following M&A will help profits return from a low point. Russian retailers Lenta and X5 Retail will have above 12% growth in 2017, it said.


For Germany, France, and the Benelux region, Moody's forecast a sales growth slightly larger than GDP, at 1.5-2%. Fierce competition will put some pressure on margins, with large retailers emphasising domestic price optimisation and expanding international penetration. Specialist formats will gain more market share at the expense of mid-market traditionalists.

In Southern Europe, the Italian economy will stay at a low ebb, with 'anemic' GDP retail sales growth of around 1%. The consumer-led recovery will keep Spain's sales strong, with a 3% growth rate. However, large well-managed retailers like OVS in Italy and fashion group Inditex in Spain both have the potential for strong underlying sales and profit growth.

As for the UK, margin pressures will result from a rising national wage and the fall in sterling. Economic concerns will diminish consumer confidence, as they have less access to disposable income due to more expensive essentials such as food.

Lurking in the background is the constant threat of a food retail price war, although Tesco's and Morrisons have maintained profitability while decreasing prices.


All retailers are struggling to overcome or grasp the opportunity that online, or bricks and clicks, can provide to their business. The UK is currently the largest, most well-developed player in the European online market, followed by France and Germany.

Moody's said that click & collect or free store returns is driving incremental in-store sales. Retailers with well-established physical stores in sectors with low online penetration are positioned to lead online, whereas discounters with less of an online presence can profit from a differentiated shopping experience in store. Finally, innovation is a key driver of success; the emerging trend of brick and mortar stores partnering with online giants (such as Morrisons and Amazon), and online retailers garnering a physical presence (such as Missguided) is proof of that, and retailers are focussing on personalising the online shopping experience more and more.

Moody's said that the forecast could become more positive if there was an acceleration of economic growth or a boost in consumer confidence, and if there was a maintained retail sales growth of at least 4% for two subsequent quarters, combined with at least stable profit margins.

© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Karen Henderson. To subscribe to ESM: The European Supermarket Magazine, click here.

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