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Announcement:

Moody's: Walmart and Best Buy lead the brick & mortar online battle as Amazon ups stakes

Global Credit Research - 15 Sep 2016

New York, September 15, 2016 -- Brick-and-mortar retailers such as Walmart and Best Buy are not only surviving online, but are actually thriving, due to their sizable physical assets and riding the online wave started by Amazon, Moody's Investors Service says in a new report. But even as these same retailers have made notable progress in bridging the gap between physical stores and online through consumer-friendly options such as the buy online/pick-up in-store offering, work lies ahead to increase their online relevance. Walmart and Best Buy are striving to build meaningful online businesses and battle to be in the conversation with Amazon.

"We believe this pitched battle is still in its early stages, and that online retail sales will eclipse 20% of total retail sales in seven years -- more than double today's roughly 9%," noted Moody's Lead Retail Analyst Charlie O'Shea. "Online sales still remain a relatively small drop in the retail revenue bucket -- although it is also proving to be by far the fastest-growing sector as brick and mortar focuses more resources on this channel."

In its report, "Walmart, Best Buy are Leading Brick & Mortar Online Fight as Amazon Ups Stakes," Moody's notes that despite Amazon's continuing to raise the bar online and its decade-plus online advantage over other retailers, it still faces intense competition from the likes of Walmart and Best Buy, which are raising the bar for brick-and-mortars. Walmart's recent acquisition of Jet.com, while not a threat to Amazon's position, provides Walmart a speed advantage in boosting online growth by leveraging Jet's ready-made platform. Additionally, Best Buy is an example of a retailer that continues to successfully transition online, with penetration approaching 20% of total sales.

Alongside investments in online capabilities, the option of buy online/pick-up in store for same day availability, remains a powerful tool for brick-and-mortars in the competition for consumer dollars. Estimated to facilitate 40-50% of all online sales by brick-and-mortar retailers, the buy online/pick-up same day model empowers retailers to unlock working capital as it helps facilitate inventory optimization. And even as brick-and-mortar retailers race to innovate to compete with online, many are still struggling under the weight of excess square footage, as Moody's cautions that there is still far too much retail square footage overall, and that square footage for non-food/non-auto-related retailers is excessive.

"We are not in the camp that believes mass store closings are in order, but rather, think that the 'fleet' must be repurposed, with some store closings a likely by-product," explained O'Shea. "When properly deployed, physical locations are a definite asset in the multi-channel world, as they represent touch points for the consumer, as well as distribution points for the retailer."

Moody's research subscribers can access this report at:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1039895

****************************************************

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Charles O'Shea
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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