17.01.2022

MOODY'S LOWERS ITS EXPECTATIONS FOR RETAIL IN 2022

Moody's lowered its expectations for retail in 2022 after strong growth in 2020 and 2021. The rating agency revised its forecast for the industry and gave it a "stable" outlook.

Analysts from the rating agency estimate the total revenue growth of 3.9% and the increase in operating profit of 2.3% in the entire industry in 2022, writes the online media Retail Dive. By comparison, expectations for 2021 are a 30% jump in operating income.

Moody's analysts say the strong growth of the past two years "will be much harder to achieve due to growing challenges, including the omicron variant of coronavirus, supply constraints, labor shortages and rising investment costs."

Just as 2021 was destined to be a much better year than 2020, tremendous demand growth cannot go on indefinitely.

The increase in demand this year was so sudden and so powerful that it blocked much of the global supply chain. After ocean carriers stopped ships due to stagnation in 2020, many shippers this year cannot find containers and have to pay extra.

Ports around the world are also operating at maximum capacity, as are trucks and air freight.

The continued proliferation of COVID-19 at key points in the supply chain and labor shortages add to the problems.

All of the above is combined to push the supply of goods in general, fueling inflation.

"The increase in margins in 2021 was supported by lower inventory levels, which encouraged a more favorable promotional environment and higher prices," said Moody's analysts. "Retailers are now struggling with a shortage of certain key inputs. This is worsening the availability of the final product, increasing costs and reducing the ability of retailers to meet consumer demand," the analysis said.

This pressure, as well as the natural leveling of demand, will normalize the situation for retailers next year, according to Moody's.

Wider penetration of coronavirus vaccines and revaccinations may also alter consumer dynamics.

Delayed demand for goods and services, which we saw in 2021, is also likely to subside as consumers increase their mobility and are likely to shift more spending to travel and entertainment, the Moody's report added.