TEXT-Fitch:Discounts, low growth ahead as retailers go multi-channel

Thu Dec 13, 2012 7:01am EST

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Dec 13 - 2013 will be a year characterized by frequent sales and promotions among non-food retailers as regular discounting becomes the new norm for the sector, Fitch Ratings says. Combined with capital expenditure hitting a five-year high especially due to investments in multi-channel platforms, this will limit free cash flow and deleveraging capacity in the sector.

In an environment of weak revenue growth and stagnant economic conditions, non-food retailers will take an even tighter grip on costs in 2013. However, Fitch expects any savings will be reinvested in price promotions and reductions, especially in the UK, as consumers are choosing to buy only when there is a sale or promotion.

At the same time, non-food retailers will continue their investment in multi-channel platforms, store refurbishments and range and service improvements in order to defend their market share. The agency expects these investments to push both total capex and capex as a percentage of sales to the highest level in five years. However, Fitch has also seen that retailers are becoming better at managing their investment programmes and also have better working-capital management than they did during previous periods of high spending.

Despite the tough operating environment, which is taking its toll on smaller companies, the agency expects non-food retailers will continue to have good access to the bond market and to benefit from their strong relationship with banks, limiting any liquidity risks. There is also little risk of major M&A activity in the sector or of retailers stepping up their returns to shareholders.

For more information on Fitch's expectations for the sector in the coming year, please see "Outlook 2013: European Non-Food Retail" on www.fitchratings.com.

Link to Fitch Ratings' Report: 2013 Outlook: European Non-Food Retail

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