Moody's turns 'positive' as retailers reaps rewards from strong U.S. economy

A Michael Kors Holdings Limited retail store is shown in La Jolla, California, U.S., May 17, 2017. REUTERS/Mike Blake

(Reuters) - Credit rating agency Moody’s Investor Service changed its outlook on the U.S. retail industry to “positive” on Thursday, for the first time since July 2015, buoyed by optimism surrounding the economy and benefits from the retailers’ online investments.

The retail industry has seen a resurgence this year with increased consumer spending and higher wages after being plagued for years by falling traffic with the emergence of online shopping.

After a tough run, U.S retail is starting to reap benefits from its investments to improve e-commerce capabilities and in-store experiences, coupled with a strong U.S economy and low employment, Moody’s said.

“A lot has changed in the U.S retail industry since late 2017, with the industry finally starting to gain traction from investments made over the past couple of years,” Moody’s said.

Moody’s raised its 2018 sales growth forecast for U.S retail industry between 4.5 percent and 5.5 percent, from a prior range of 3.5 percent to 4.5 percent.

The agency also said online sales, which it expects to generate a “strong” operating profit growth in 2019, will continue to outpace overall retail growth as more companies harness e-commerce, which is still 15 percent of overall U.S. retail sales.

Moody’s added that declines in department store chains would taper in 2019.

The rating change comes as retailers prepare for the all-important holiday shopping season with expectations for sales to be up more than 4 percent this year, according to National Retail Federation.

Moody’s, on the other hand, expects holiday sales to grow 5 percent to 6 percent this year.

Reporting by Soundarya J in Bengaluru; Editing by Shailesh Kuber