Dive Brief:

• Analysts with Moody's anticipate a stable retail industry in 2020 as investments in e-commerce and operations "bear fruit," and consumers sentiment and employment remain strong. The ratings firm projects industry-wide operating income growth of 3% to 4%, according to an emailed report.
• The analysts also expect e-commerce growth to outpace the rest of retail, with online retail sales reaching 25% of the total pie in the next four to five years.
• But trade tensions with China, risk of a recession and high levels of debt for many retailers remain risks for the industry, the analysts said.

Dive Insight:

Amid the thousands of store closures of 2019, the retail industry as a whole has continued growing its sales. Even after a sluggish November, with its all-important shopping holidays, analysts are largely positive on the industry's prospects going into the new year. Nevertheless, there are major pockets of distress and decline, particularly among retailers tied to lower-tier shopping malls.

Moody's analysts expect profit growth in the industry to be "broad-based," with more than half of the industry's 13 sectors (as defined by Moody's) to have operating income growth of more than 4%. But there are disparities among retail's sectors. Dollar stores, off-pricers, e-tailers, supermarkets and specialty retailers will outperform the industry as a whole, according to Moody's.

Dollar stores' operating profits are set to increase more than 9%, "as value and convenience resonates with consumers and e-commerce penetration for this group remains low," the analysts said. Operating income in off-price could rise 7%, "with the value proposition and treasure format driving traffic," they added. 

Meanwhile, Moody's projects department stores' operating income to fall about 1% next year "after a major contraction in 2019." The analysts added that the sector needs to reduce its collective debt and "transform rapidly to meeting changing consumer needs." 

With a permanent trade deal with China still out of reach, tariffs pose a continued threat to apparel makers and retailers, though the analysts estimate profit growth of up to 5% for apparel retailers next year. The analysts also pointed to risks for apparel sellers from climate change and awareness among consumers of their purchases' environmental impact. "Companies will need to continuously work toward sourcing transparency while making investments in sustainable supply chains," the analysts said.