Thursday, June 5, 2008

European Retailers Could Struggle In A Prolonged Sluggish Economic Environment, Says S&P Report

(The Eiffel Tower, Paris, above. London skylines at top right.)

LONDON June 5, 2008--The challenging economic environment looks set to last longer than expected in Europe as the financial crisis continues, according to a recent report published by Standard & Poor's Ratings Services.

In the industry report card, titled "European Retail Continues To Enjoy Sound Fundamentals, But Some Companies Could Struggle If The Sluggish Environment Persists," Standard & Poor's considers individual markets and companies, commenting that performance will vary significantly depending on the country of operation, store format, and the degree of exposure to the nonfood market.

"Western European retailers have so far proven resilient, as demonstrated by relatively good trading performance in 2007, but this resilience will be tested in the longer term," said Standard & Poor's credit analyst Nicolas Baudouin.

(Downtown Berlin at left)

In France, retailers have been able to pass on rising prices to customers. However, French households are increasingly demanding better value for money, and the government has started to pledge low prices on the premise that retailers should contribute.

U.K. retailers, meanwhile, continue to face a tough operating environment. High utility bills and increasing difficulties in obtaining credit weigh on consumer sentiment, while rising prices for commodities such as wheat and milk and intense competition put pressure on top-line growth and margins.

While most reported headline figures for the German retail segment were depressed for the full-year 2007, the outlook for 2008 and beyond looks slightly better than the European average.

(Paris skyline and the Seine River at left)

This mainly reflects the positive fundamentals of the German economy, such as higher year-on-year employment and wages, which, in combination with a positive swing in consumers' attitude to spending, support expectations for improved purchasing power.

The Russian retail market again demonstrated very rapid growth in 2007, and we expect this trend to continue for a number of years.

The favorable environment is proving especially beneficial for the larger retail chains, which continue to strive for rapid expansion to retain their competitive position in this lucrative market.

(Moskav River in Downtown Moscow at right)

"Emerging markets will undoubtedly continue to see marked growth momentum, putting players with substantial overseas operations in a stronger position to offset lackluster domestic trading," Mr. Baudouin added.

Media Contact:
David Wargin, New York (1) 212-438-1579, david_wargin@standardandpoors.com
Analyst Contacts:
Nicolas Baudouin, Paris (33) 1-4420-6672
Marketa Horkova, London (44) 20-7176-3743
Industrial Ratings Europe

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