European Retailers Are Facing Challenges Beyond Economics

(Bloomberg) --

Gloomy assessments of the financial health of retailers in different European countries by separate credit ratings firms highlight a structural malaise running deeper than any impact from the economic cycle.

Stores in Britain, trading under a cloud of uncertainty around how the country’s exit from the European Union will unfold, face falling earnings that make cuts to their credit scores more likely, according to a report published Tuesday by S&P Global Ratings. An assessment of their competitors in Belgium, the Netherlands and Luxembourg by Moody’s Investors Service also highlighted weak conditions for trading.

Both reports largely attributed their views to changes in consumer spending habits related to the shift toward online shopping. Amazon.com Inc accounts for almost a third of non-store sales in the U.K., according to S&P. Internet shopping can also be blamed, on top of a deteriorating economic outlook, for challenges faced by Dutch retailers such as Hema BV and Maxeda DIY Group to reduce their debts, according to Moody’s.

There were some reasons for optimism in the reports. Dutch discount retailer Action Holding BV is likely to improve on the back of its expansion to Germany and France, said Moody’s. British brand Marks & Spencer will also probably get a boost from a partnership with online grocer Ocado starting in September, according to S&P.

But S&P took a negative outlook on 40% of U.K. retailers and the agency said that lower sales during the crucial Christmas period will further weaken their earnings.

Last year creditors took over department-store chain Debenhams Plc after failed rescue attempts. The U.K. retail crisis has previously claimed household names including store owner BHS and the British arm of Toys “R” Us Inc.

©2020 Bloomberg L.P.

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