NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: 2017 Outlook: U.S. Retail and Restaurants (Sector Challenges Force Business Model Transformations) https://www.fitchratings.com/site/re/891724
U.S. retailers and restaurants will continue to face a competitive environment in 2017 as they navigate changing customer preferences, according to Fitch Ratings' Outlook report. The industry's rating and sector outlooks are both Stable, unchanged from 2016.
Retailers facing a shift in customer shopping habits and attitudes toward discretionary expenditures have responded by moving to omni-channel models to holistically serve the customer across their online and bricks and mortar presence.
"Spending focus on services and experiences appears here to stay, so the dividing line between best-in-class retailers and market share donors is increasingly going to be determined by which retailers can cater to the evolving landscape," says David Silverman, Senior Director, U.S. Corporates. "Those that find success have invested in the omni-channel model and have differentiated their products and customer service to draw customers in."
Fitch projects U.S. retail sales, excluding automobiles and gasoline, to grow 3%-4% in 2017. This is in line with the 3.8% forecasted for 2016 due to a generally consistent economic backdrop. More than half of retail sales growth will occur online, while in store sales growth is limited to around 1%.
Fitch believes Dollar Tree, Burlington Stores, Levi Strauss, Coach and JC Penney are on a positive trajectory, while Sears, Claire's Stores, Gymboree, Abercrombie & Fitch, Vince and Bon-Ton will be challenged to maintain share, liquidity and positive comps.
Restaurant companies will also see market share shifts in 2017. Fitch expects food away from home sales to increase 4% in 2017, slightly lower than the 5% projected for 2016. Breakfast, value and convenience will draw customers over the next year.
"Even as the job market improves, consumers are looking for relatively low price points and the convenience to order online when they eat away from home," says Carla Norfleet Taylor, Director, U.S. Corporates. "With persistent food price deflation, deal promotions will likely be a tactic restaurants use to get people in the door."
Fitch believes Starbucks and Darden Restaurants will benefit from these trends given the former's strong position in the coffee market and improvement at Olive Garden, which continues to gain traction with ToGo orders and its value perception, for the latter. Olive Garden is expected to continue to gain share in the casual dining sector which continues to lose share in the industry.
By contrast, Fitch believes McDonald's Corp. will continue to lose market share in the U.S. due to heightened competition due to the rise of specialty burger competitors and increasing breakfast competition, while Brinker International grapples with high exposure to oil producing state where economies have been challenged.
The full report, "2017 Outlook: U.S. Retail and Restaurants," is available at www.fitchratings.com
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