Dive Brief:

• Robust holiday sales suggest that U.S. consumers “remain fairly resilient against a general backdrop of mixed economic fundamentals,” Moody’s Investors Service said in a report emailed Wednesday to Retail Dive.

• Total retail sales in the 2016 holiday period were in line with Moody’s overall expectations, and the credit ratings firm projects sales growing at an annualized pace of 3% to 4% for 2017.

• But department stores were an outlier: The category failed to keep pace despite lower inventory levels and favorable seasonal weather, and “chalked up one of the worst retail sub-sector sales performances” in the period, Moody’s senior analyst Christina Boni said, adding that online sales are becoming more integral to brick-and-mortar department stores’ topline growth.

Dive Insight:

Home improvement, dollar stores, specialty retail and off-price stores will be among the biggest growth drivers in 2017, and convenience stores’ operating income growth will improve year-over-year in 2017, Moody’s said. Amazon’s revenue will rise this year, but its gross margins will be flat, according to the report; meanwhile, the apparel sector will likely suffer a discount slump, followed by an upturn in operating performance measured by earnings before interest, tax, depreciation and amortization (EBITDA).

But consumers' shift to off-price stores and e-commerce channels spells more trouble for department stores, Moody’s said Wednesday. “We now expect operating profit for the sector in 2016 to decline 18% relative to our prior forecast of 11%,” Boni wrote, noting that for the 2016 holiday, Macy’s and Kohl’s each posted a 2.1% decline in same-store sales, while J.C. Penney Co. fell 0.8%. Furthermore, Macy’s is forecasting that same-store sales will decline another 2% in 2017, Boni added.

Nick Egelanian, president of retail development consultants SiteWorks International, agrees that customers are turning to off-price stores and beauty retailers like Ulta instead of department stores, and says that is hurting the sector far more than e-commerce.

“The narrative that’s out there that the internet has anything to do with department stores failing is wrong,” Egelanian told Retail Dive. “It’s not stopping H&M from opening stores, it’s not stepping [off-price retailers] TJX or Ross. Cosmetics are the last bastion of the department stores, and Ulta is accelerating its store growth... This is the 30-year transfer of departments out of department stores. Department stores are under full scale assault, and this is just the beginning.”

Moody’s conclusion that Amazon’s revenue growth will continue but its margins will remain flat also bolsters Egelanian’s contention that e-commerce is not retailers’ most promising source of growth. “[Amazon's] not making money shipping goods,” he told Retail Dive.