US: Value retailers to prosper in 2009 - study
US retailers that focus on value are more likely to win over consumers in 2009 as shopping habits change amid the economic downturn, a study has forecast.
A focus on promotion and pricing will be more prevalent among retailers as they look to win share of consumers' "shrinking wallets", debt ratings agency Fitch said yesterday (19 November).
Rising unemployment, uncertainty over jobs, higher household bills and the lower availability of credit will hit US consumer spending and "discount formats", including Wal-Mart and Costco, will benefit, Fitch said.
"Companies that have built a strong value perception and have strong private and exclusive brand offerings should also outperform relative to their peers," Fitch said.
Among the discounters, Fitch said operating profit margins should remain "relatively steady" during 2009 due to the companies' low-cost business models. Store expansion plans, however, will slow, due to the challenging economic environment, the agency added.
Supermarkets with a "strong price message" will perform better than their peers, although the pressure on sales will remain.
"Identical store sales will continue to be pressured by trade down to discount formats and value priced products including private label," Fitch said.
However, Fitch predicts that "stronger operators" will be able to offset the impact of price cuts on margins with cost cuts elsewhere in the business.
"Kroger's strong value image has resulted in it continuing to report industry leading mid-single digit non-fuel identical store sales, and Safeway and Kroger have both been able to offset price investments with operating cost efficiencies," the agency observed.
The economic downturn could also lead to "opportunistic mergers and acquisitions" in the supermarket sector in 2009, although any deals are expected to be "small and market based", the agency added.
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