Fitch: E-Commerce to Grab Bigger Piece of Retail Pie in 2016
'The growth of e-commerce will be the great differentiator for many retailers- an opportunity for some and a threat to others,' says David Silverman, Senior Director. 'It has fundamentally changed the way retailers think about their operations, investments and branding.'
Fitch expects e-commerce will account for 15% of total retail sales and 50% of growth in total retail spending in 2016. This will continue to erode in-store traffic and spending, necessitating investments in real estate, product distribution, inventory, and IT infrastructure, among other things, that may pressure margins in the near term. Department stores will remain the most-pressured segment, with additional store closings possible.
Other themes that will continue to play out in 2016 include:
--Bifurcation of consumer spending: Mid-price brands, mostly in the apparel space, may get stuck in the middle of the price spectrum as consumers find value at the low end and their aspirations at the high end;
--Challenges among single-category retailers: Low-priced general merchants are a continued threat, except for retailers with significant inventory depth, convenience or customer loyalty;
--Acquisition- and buyback-driven EPS growth: Retail's mature business model has forced retailers to seek growth in inorganic ways, especially as activists have raised their presence in the industry.
Fitch's retail sector outlook remains stable, with continued wage growth constraints or an unexpected economic downturn being the two largest threats. However, even in those scenarios mass downgrades in Fitch's portfolio would be unlikely, given most retails have enough cushion in their current ratings to withstand a downturn.
The full report, '2016 Outlook: U.S. Retailing,' is available at www.fitchratings.com.