Dive Brief:

• Moody's slashed estimates for the retail industry's performance this year as analysts now anticipate market share battles, as well investments in e-commerce and omnichannel capabilities to cut into profits, according to an emailed report.
• Analysts with Moody's lowered their outlook to stable, from positive, and now expect aggregate operating profit for the retail industry to grow 2% to 3% in 2019, down from previous estimates of 5% to 6%. They also knocked a percentage point from their sales growth estimates, now expecting retail sales to rise 3.5%-4.5%.
• Tariffs and labor costs are also pressuring profits, with other forces hobbling individual sectors. The analysts, however, see bright spots too, including benefits from e-commerce investments, expectations for up to 4.5% sales growth in the 2019 holiday season and a strong U.S. consumer.

Dive Insight:

This year has been hard-fought for retail after it made gains in 2018. As the Moody's analysts tell it, "[R]etailers have been locked in a battle of mounting competition for market share — waging pricing wars while plowing more cash into necessary investments for future growth."

Beyond general price pressures, specific sectors have been struggling with their own troubles. Slowing housing markets are weighing on home improvement stores, apparel and specialty retailers have been hit by continued foot traffic declines and discounting, and drugstores are dealing with pressure on reimbursement rates. 

Not all sectors are hurting, though. Moody's forecasts operating profit growth of 4.3% in 2019 for online retailers, 5.6% for discount retailers and warehouse clubs, and 4.8% for off-price retailers.

For 2020, Moody's analysts expect much of the industry to improve. They forecast growth in operating income of 3% to 4%, though margins will likely stay pressured as "the overall retail industry will remain aggressively competitive as retailers continue to push promotions to gain market share."

At the same time, retailers have been helped along by investments in e-commerce and integration of digital and stores, as well as by paring their store footprint, Moody's analysts said. Those efforts could continue paying off next year.

And the strong will likely get stronger. The analysts called out Walmart and Target, which they expect "will continue to record a payoff from some sizable investments they have made for growth," as well as Costco for its likely "strong, predictable growth" in 2020.

The analysts also expect dollar stores, Lowes and Best Buy to reap the benefits of investments and operational tinkering. For 2020 operating income, Moody's projects 7% growth for off-price retailers and more than 9% growth for dollar stores. Amazon, meanwhile, "is tough to predict given the uncertainty surrounding Amazon's investment cycle."