A new report by Moody’s Investors Service predicts that growth for retailers will slow due to the costs of integrating eCommerce with brick-and-mortar operations as well as increasing price wars between companies, according to a report by CNBC.
The company slashed the operating profit forecast for 2019 to between 2 percent and 3 percent. It was previously between 5 percent and 6 percent. Moody’s said the growth rate for 2018 was strong, at 4.9 percent.
This year, sales were expected to be between 4.5 percent and 5.5 percent, but were lowered to between 3.5 percent and 4.5 percent.
The changes stem primarily from the investments involved with eCommerce and intense competition from big-box stores, Moody’s said. Moody’s cut the outlook for the industry from stable to positive.
As retailers fight for market dominance, specialty stores and smaller stores that sell specific items, like footwear or clothing, continue to suffer.
“The competitive landscape is becoming very, very challenging,” said Mickey Chadha, a vice president at Moody’s. “The small guys that are facing a lot more competition aren’t keeping up with the pricing pressure and aren’t doing as well.”
Some of the issues involve the size of a store. A store that’s between 60,000 - 80,000 square feet, for example, might not need as much space, but closing the store could also be bad for business. The company said it could potentially use part of the store as a warehouse, but there would be costs associated with that as well.
“Just closing a store randomly actually could hurt you as a retailer,” Chadha said. “Because as eCommerce and brick-and-mortar are integrating toward one channel where you’re agnostic as to where you buy, a store does offer some compelling reasons to be there, because you can buy online and pick up in the store, or if you buy online, you can return in the store.”