Moody’s Ratings has maintained a negative outlook for the global retail and apparel sector in 2026, warning that persistent inflation, cautious consumers and weakening discretionary demand will continue to pressure retailers throughout the year.
In a report published April 28, Moody’s said worldwide adjusted EBIT for the sector — excluding online sales — is expected to remain flat or decline by up to 2% in 2026, following a 1.6% drop last year.
The ratings agency said consumers remain highly value-conscious as affordability pressures continue, limiting retailers’ ability to pass on rising supply chain and sourcing costs through higher prices.
Against that backdrop, Moody’s expects large value-oriented retailers including Walmart, Costco and Target to outperform competitors in the U.S. market.
Dollar stores and off-price chains such as TJX Companies, Ross Storesand Burlington Stores are also expected to benefit as shoppers continue trading down.
Moody’s described Walmart as the strongest positioned retailer in the current environment, citing its combination of value pricing, operational innovation and convenience. Analysts said the retailer has increasingly attracted higher-income consumers looking to offset rising household costs.
Costco was highlighted for its membership-fee model, which Moody’s said provides insulation from rising merchandise costs because a large share of its EBIT comes from recurring membership income rather than product margins.
Meanwhile, Target continues to invest in its turnaround strategy and store operations, though Moody’s noted broader department store and discretionary retail categories remain under pressure.
The agency warned that apparel and footwear retailers are likely to face a difficult first half of 2026 despite temporary tariff reductions on imported goods.
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Weaker discretionary spending, elevated fuel prices and lingering tariff-related costs are expected to continue weighing on profitability.
Among apparel brands, Moody’s said Ralph Lauren and Tapestry are outperforming peers through strong brand positioning, marketing and international expansion efforts. By contrast, Nike and Under Armour are still struggling to execute turnarounds amid softer demand and operational challenges.
Moody’s also flagged broader macroeconomic risks tied to ongoing geopolitical tensions in the Middle East, which have contributed to higher energy prices and reduced fuel supplies.
The agency said middle- and lower-income households in the U.S. continue to face significant affordability pressure as wage growth fails to keep pace with inflation.
The report comes amid wider concerns about the long-term impact of e-commerce and AI-driven shopping on physical retail.
Recent UBS research projected that more than 40,000 U.S. retail stores could close over the next five years, with department stores and specialty retailers expected to be the most vulnerable.
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