Retail growth to cool after 2021's burst of demand: Moody's - The Entrepreneurial Way with A.I.

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Friday, October 15, 2021

Retail growth to cool after 2021's burst of demand: Moody's

#SmallBusiness

Dive Brief:

  • Moody's lowered its expectations for the retail industry going into 2022 after "ferocious" growth in 2021 so far. The ratings agency lowered its industry outlook to stable.
  • Analysts with the ratings agency estimate overall revenue growth of 3.9% and an operating profit increase of 2.3% across the industry. That follows Moody's forecast of a nearly 30% operating income spike for 2021. 
  • The Moody's analysts said that recent "stellar" growth "will be that much more difficult to match because of mounting challenges, including the delta variant, supply constraints, labor shortages and increasing input costs."

Dive Insight:

Just as 2021 was destined to be a much better year than 2020 — precisely because the latter was so bad, for retail and the world at large — the extraordinary growth of a demand rebound could never last indefinitely. 

Demand growth this year was so sudden and so powerful that it jammed up much of the global supply chain. After ocean carriers took ships offline amid 2020's demand doldrums, this year many shippers can't find containers and have to pay up when they do.

Ports around the world are backed up, and trucking and air freight capacity are also under strain. The continued spread of COVID-19 throughout key points of the supply chain as well as labor shortages have added to the problem. All of the above have combined to pressure the supply of goods overall, with many expecting a holiday season featuring a lot of empty shelves. (The relative exceptions to that would be the largest retailers, which have deeper pockets to help mitigate the global supply chain turmoil.)

"Margin expansion in 2021 has been supported by lower inventory levels, which fostered a more benign promotional environment and higher pricing," Moody's analysts said. "Nonetheless, retailers are now contending with a scarcity of certain key input materials. This has impaired finished product availability, increased costs and reduced the retailers' ability to meet consumer demand."

These pressures as well as a natural leveling out of demand will make for cooler, if more normal, times for retailers next year, according to Moody's. Deeper penetration of the COVID-19 vaccine — following the delta variant spread, President Joe Biden's move to mandate employee vaccination for large employers, and an expected approval of vaccines for younger children — could also change the consumer dynamic. 

"The pent-up demand we have seen for goods and services this year is also at risk of reversing as consumers increase their mobility and possibly shift more spending to travel and leisure experiences," the Moody's analysts said in their report. 





via https://www.aiupnow.com

Ben Unglesbee, Khareem Sudlow