Economic expansion in retail sector to moderate post 2021's surge in consumer demand according to Moody's forecast
Here's a fresh take on the topic:
Scoop:
- Moody's ain't mincing words when it comes to '22 retail industry predictions. After a stormy growth ride in '21, the ratings agency has revised its industry outlook to stable.
- Moody's analysts foresee a modest revenue growth of 3.9% and a 2.3% profit boost across the retail landscape. This comes after a forecasted nearly 30% surge in operating income for '21.
- Moody's experts warn that the recent incredible growth could be hard to maintain due to mounting challenges like the delta variant, supply chain bottlenecks, worker shortages, and climbing costs.
The Backstory:
- You might think 2021 was going to be a walk in the park compared to 2020, but boy, were you wrong. The demand rebound was so fierce it clogged much of the global supply chain.
- After ocean carriers took ships offline during 2020's demand drought, they're struggling to find containers and are forced to pay up when they do.
- Port congestion, trucking and air freight strains, plus ongoing COVID-19 transmission throughout vital supply chain links and labor shortages have contributed to a crunch in product supply. Many fear a month of empty shelves during the holiday shopping season, but the largest retailers, with deeper pockets, may be the exceptions.
Moody's Take:
- Moody's analysts acknowledge that the stunning growth couldn't last forever. With mounting challenges, they predict a cooler, if more normal, reality for retailers in '22. The deeper penetration of COVID-19 vaccines, President Biden's mandate for large employers to vaccinate workers, and potential approvals for vaccines for younger kids could alter consumer behavior, too.
- Moody's analysts believe the pent-up demand we've seen for goods could diminish as consumers become more mobile and shift their spending towards travel and leisure experiences.
Enrichment Data:- Retailers faced difficulties due to labor shortages, supply chain disruptions caused by COVID-19 and its variants, rising costs of raw materials and logistics, insufficient technological integration, and broader supply chain risks such as severe weather, geopolitical instability, and labor disputes.- These challenges put retailers' ability to maintain inventory, meet consumer demand, and achieve financial objectives at risk. Consequences included delayed growth projections and missed targets, as seen with Foot Locker having to revise its growth expectations.
- The labor shortages, supply chain disruptions due to COVID-19 and its variants, rising costs of raw materials and logistics, insufficient technological integration, and broader supply chain risks such as severe weather and geopolitical instability have posed significant challenges for retailers.
- The recent surge in retail industry growth may not be sustainable, according to Moody's analysts, who cite mounting challenges like the delta variant, supply chain bottlenecks, worker shortages, and climbing costs as major concerns.
- As the deployment of COVID-19 vaccines widens and President Biden's mandate for large employers to vaccinate workers comes into effect, there is a possibility that consumer behavior could shift away from goods and towards travel and leisure experiences, as predicted by Moody's analysts.
- The AI industry could play a crucial role in addressing the challenges faced by retailers, including inventory management, demand forecasting, and logistics optimization, which could help retailers maintain inventory, meet consumer demand, and achieve their financial objectives more effectively.
