From Moody’s Investors Service it is explained that the profitability of many traditional retailers is under pressure while they reduce prices to stop the sales volume drop.
Retail’s profitability in Europe, in a tight spot. 40% of companies specialized in the retail commerce within the whole European Union will record a gross operating result (ebitda) lower than the one of the two last exercises, according to Moody’s Investors Service. In the previous previsions, held last October, the percentage was on 20%.
“Profitability of many traditional retailers is under pressure while prices are reduced to stop sales volume drop”, state the senior vice-president of the financial’s group credit office David Beadle. As commented by the expert, a modest growth of retail sales in general is likely to happen, but also a reduction of margins.
Beadle points that sector’s profitability is threatened by a growing demand in discounts and online-specialized retailers, who operate with much more lower margins. The company estimates that online sales’ growth rate is keeping between a 5% and a 15%, with variations within segments and regions.
Population ageing and the impoverishment of younger generations will maintain discounts and pressure above margins policies
In this sense, part of the commerce that leads to the online deducts traffic on the street level commerce. According to Moody’s, this scenario obligates much more traditional retailers to continue rationalizing its store network in response to profitability deterioration.
Demographics evolution also plays a role against commerce in front of population ageing and the poverty growth within the younger generations. This dynamic boosts vectors of consume linked to the value and convenience. Formulas like Black Friday and discount policies will be intensified, damaging the margins even more.
Retailers that play outside discounts or online business segment and that keep growing are benefiting from cost reduction programs in a short term. However, it will be difficult for them to maintain their current ebitda’s progress rate.
British distribution groups House of Fraser and Debenhams are an example of traditional business that are refocusing their strategies to adapt to new consume habits. According to Moody’s, in the following months, more instances like this one will be seen in all the European continent.