Moody's retail outlook reverses a year of tariff-driven caution
Moody's Ratings moved its global retail and apparel sector outlook from negative to stable in an October 7 report, citing easing tariff costs and stable labor markets [1]. That single rating change marks the end of a cautious stretch that began when the agency first flagged tariffs as a material threat to sector earnings.
The new numbers are concrete. Moody's now projects sector revenue growth of 2% to 4% alongside adjusted EBIT growth of 0% to 2% over the next 12 to 18 months, a reversal from the 0.7% adjusted EBIT decline the sector posted in 2025 and the agency's own prior 2026 forecast of flat to down 2% [1].
Moody's credited tariff refunds with helping offset higher energy and transportation costs, while "solid household finances are supporting overall consumption" [1]. That is a direct reversal of the agency's own read on the sector a year earlier, when it had warned tariffs would materially drag on earnings.
| Period | Outlook | Adjusted EBIT growth |
|---|---|---|
| 2025 (actual) | Negative | -0.7% [1] |
| Prior 2026 forecast | Negative | Flat to -2% [1] |
| Updated Oct. 7, 2026 forecast (next 12-18 months) | Stable | 0% to 2% [1] |
Tariff refunds are already reshaping pricing strategy
The refunds behind this upgrade are not abstract. Walmart and Target have booked close to $4 billion in combined tariff reimbursements that Moody's said the companies "can use strategically to reinvest in pricing and strengthen their market positions" [1]. Walmart received substantially all of a $2.9 billion refund tied to tariffs the Supreme Court struck down. Target collected the significant majority of a refund just under $1 billion [2].
Levi's and Macy's have also used tariff refunds to fund their respective turnaround efforts, a pattern Moody's expects to continue as more retailers report the recoveries on upcoming earnings calls [1]. For commerce teams, that means pricing and promotion engines need to absorb refund-driven markdowns without eroding margin visibility, a planning variable that barely existed in prior budget cycles.
| Retailer | Tariff refund received | Primary use |
|---|---|---|
| Walmart | $2.9 billion [2] | Price investment in grocery and general merchandise |
| Target | ~$994 million [2] | Margin support and continued price reductions |
Off-price and discount chains are the clearest winners
Discounters, off-price retailers and dollar stores are best positioned in the environment Moody's now expects. The agency pointed specifically to the "treasure hunt" appeal of off-price retail as a growth driver for chains including TJX and Ross Stores, alongside dollar-format players such as Dollar General [1].
That strength lines up with a broader bifurcation Moody's is flagging in the consumer base. Lower- and middle-income households are under pressure from housing, insurance, food and energy costs, pushing them toward value-focused spending and, in some cases, heavier reliance on credit [1]. Upper-income households are driving most of the consumption growth that is keeping the sector's top line intact [1].
That split mirrors what the National Retail Federation described earlier this year in its own 2026 outlook: overall retail sales forecast to grow 4.4% to $5.6 trillion, following a 2025 in which sales reached $5.4 trillion and holiday spending topped $1 trillion for the first time [3]. The macro growth story and the bifurcated-consumer story are not in tension. They are the same forecast seen from two different altitudes.
Home improvement is the sector left out of the upgrade
Moody's upgrade does not extend evenly across every category. Rising interest rates are constricting the housing market, and the agency projected tepid growth for home-improvement companies including Home Depot and Lowe's as a result [1]. Existing homeowners locked into low fixed-rate mortgages are more likely to pursue smaller projects that avoid new financing rather than undertake the larger renovations that drive big-ticket sales [1].
Apparel and footwear tell a different story. Lower tariff rates and refunds have cut costs meaningfully for import-dependent brands including Nike and Gap, along with large discounters and general merchandise chains such as Walmart and Target [1]. The same tariff relief that is lifting apparel margins has no equivalent mechanism for housing-linked categories, which explains why the upgrade reads as sector-wide but lands unevenly by vertical.
What could send the outlook back to negative?
Moody's identified four specific triggers that would reverse this upgrade: slowing consumer spending, higher energy or financing costs, weaker employment, or renewed tariff escalation [1]. Any one of them hitting sector EBIT hard enough could flip the rating back to negative within the same 12-to-18-month window the agency is now forecasting growth for.
“Consumer spending will be resilient but increasingly bifurcated, with consumption growth driven mainly by upper-income households.”
The risks are not hypothetical. U.S. trade policy remains unsettled, particularly around trade agreements with Mexico and Canada that Moody's described as "under review amid elevated tensions" [1]. A sustained period of high energy prices tied to geopolitical tension would also raise freight and transportation costs for retailers, which Moody's said "could reignite pressure for companies to raise prices" [1].
Looking at the immediate calendar, Moody's expects the coming holiday season to be promotion-driven, with budget-conscious shoppers planning purchases carefully rather than spending freely [1].
What the upgrade means for commerce planning
A credit-rating upgrade does not change a retailer's day-to-day operations, but it does change the planning assumptions underneath pricing, inventory and channel investment decisions. Three implications stand out for commerce and IT leaders heading into 2027 budget cycles:
The upgrade itself is good news for a sector that spent much of 2025 bracing for tariff-driven earnings damage. But Moody's own framing, resilient yet bifurcated, uncertain yet stable, is a reminder that the easier macro backdrop still requires retailers to plan for two different consumers and two different cost environments at once.
- Pricing systems need to handle refund-funded markdowns as a distinct input, separate from standard promotional calendars, since tariff refunds are a one-time capital event rather than a recurring cost structure.
- Category-level forecasting should diverge by exposure to housing and financing costs, since Moody's treats home improvement and apparel as moving in opposite directions under the same macro upgrade.
- Inventory and sourcing teams still need contingency plans for trade-policy reversal, given that Moody's named Mexico and Canada trade tensions as an active, not hypothetical, risk to the stable outlook [1].
Sources
- [1]Retail Dive, Moody's upgrades retail and apparel outlook as tariffs ease — retaildive.com
- [2]Supply Chain Dive, How big box retailers are using tariff refunds — supplychaindive.com
- [3]Retail Dive, NRF forecasts 4.4% retail sales growth this year despite rising uncertainty — retaildive.com
