Brisk Retail Outlook Ahead, But Slowing Down: Moody's Report
Sluggish yet Expanding Retail Sector Predicted for 2022 According to Moody's Analysis
Cheers! It seems the retail sector is gearing up for more growth, albeit at a more leisurely pace compared to the whirlwind of 2021, as per Moody's analysts' latest report.
Expect a 2% growth in U.S. retail operating income next year, marking a significant drop from the predicted 30% surge in operating profit growth in 2021. Sales growth for the retail industry? Under 5%, pales in comparison to this year's over 10% projected growth. E-commerce, however, will continue to be the cherry on top, powering U.S. retail growth.
Retail Recovery Surpassed Expectations in 2021
Looking back, retail was expected to soar in 2021, given the pandemic-induced store closures of some major chains. But much like the phoenix from the ashes, retail's comeback was swifter than many anticipated, nourished by vaccines, employment revival, and stimulus. Consumers' robust demand, in many instances, has been greater than the global supply chain's capabilities to meet it, causing stock shortages.
Financial markets have been buzzing too, providing a helping hand to retailers of all stripes. This aid has boosted liquidity and eased debt refinancing, keeping many away from bankruptcy courts. In fact, industry bankruptcies have kicked back to levels not seen in years.
Debt, Supply Chains and Consumer Spending: Risk Factors
But before you pop the champagne, remember there's always a catch! Moody's analysts identified the retail sector's elevated debt levels as a pressing concern, with debt soaring to never-seen-before heights due to pandemic-related actions. This could lead to repayment trouble when the going gets tough or liquidity dips.
Supply chain disruptions and a shift in consumer spending towards experiences pose additional challenges.
Sector-wise Predictions
Big-box retail giants may face a slight correction as Moody's projects their operating profits to shrink around 2.2% next year, a far cry from the massive expansion of the last two years. On the flip side, expect online retail to keep scaling at a steady pace, with online sales penetration forecasted to surpass 30% in the next five years.
So there you have it, folks! The retail sector's on an upward trajectory yet again, but brace yourself for a more moderate ride next year. Keep a watchful eye on debt levels, supply chain disruptions, and consumer spending shifts to navigate these choppy waters successfully.
The financial markets have been instrumental in boosting liquidity and easing debt refinancing for retailers, yet the elevated debt levels due to pandemic-related actions have been identified as a pressing concern by Moody's analysts (Debt, Supply Chains and Consumer Spending: Risk Factors).
The shift in consumer spending towards experiences and ongoing supply chain disruptions pose additional challenges for the retail sector (Debt, Supply Chains and Consumer Spending: Risk Factors).
In the midst of the ongoing pandemic and market volatilities, AI-driven forecasts suggest that online retail sales penetration could surpass 30% in the next five years, marking a significant change in the retail landscape (Sector-wise Predictions).
