DBRS Morningstar Global 2023 Retail Outlook: Rough Times Ahead for Discretionary Retail

DBRS Morningstar released a commentary titled “Global 2023 Retail Outlook: Rough Times Ahead for Discretionary Retail.” Our negative outlook for retailers globally in 2023 reflects our view that the credit risk profiles of such companies in our ratings portfolio will be pressured, albeit to varying degrees, depending on where they are on the discretionary to nondiscretionary spectrum, as a result of shrinking consumer wallets, persistent levels of inflation, and a challenging macroeconomic backdrop. At the same time, we expect retailers further on the consumer staples end of the spectrum or those, such as dollar stores, that offer value-based products, to be less adversely affected or to even benefit from higher demand and an increased number of visits from price-sensitive customers.

“We believe that the aforementioned challenges could materially weaken credit risk profiles of discretionary retailers and/or affect their ongoing recovery, even more so for retailers with comparatively weaker financial profiles; as a result, this could lead to negative rating actions or the delay/suspension of positive rating actions that were previously envisaged. At the same time, we expect credit risk profiles of discount stores or retailers with less discretionary products to remain relatively stable, given their ability to pass through most cost increases amid a shift in consumer behaviour toward value-based or discounted products. ” notes Vikas Munjal, Vice President, Credit Ratings, Diversified Industries.