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Moody’s 2016 Outlook for Retail Positive, But Apparel Will See Slower Growth

For retail the coming year looks positive, according to Moody’s Investor Relations, but for apparel, the outlook is only stable and growth in the sector is expected to slow.

In 2016, retail sales growth will accelerate in the 4 to 5 percent range, and operating margins are expected to improve as retailers have focused more on operating efficiencies and leveraging fixed costs.

“Retail sales growth will be toward the lower end of our 3 to 4 percent forecast range in 2015, which reflects much lower first-half gasoline prices at the pump relative to 2014 and severe weather in the first quarter that forced consumers to stay at home,” Moody’s analysts noted.

E-commerce sales will also continue their upward trajectory, outpacing overall retail sales but still only accounting for 8 to 10 percent of total sales. Brick-and-mortar companies will stay the course, building out additional capabilities and leverage their stores.

When it comes to apparel, the industry will see income growth fall below sales growth.

Operating income growth for apparel will slow from the high-single digit range in 2015 to a lower 3 to 5 percent, and the strong U.S. dollar will weigh on margins as favorable foreign exchange hedges for 2015 roll off.

Top line growth will remain in the 4 to 6 percent range, with the highest growth rates in emerging markets like China, Brazil and Eastern Europe despite what Moody’s called the “choppy macro economic environment.”

“On a positive note, many apparel companies will still benefit from organic growth opportunities overseas, particularly given the rising middle class in emerging markets,” Moody’s said. “In addition, rising direct-to-consumer businesses strengthen brand positioning with the consumer.”