European retailing outlook: corporates face growing capex challenge amid slow growth, tight margins

The European retail sector, particularly in food and electronics, continues to face a challenging operating environment shaped by shifting consumer behaviour, rising cost pressures and investment-heavy structural transformation, says Scope Ratings.

“Persistent inflation and weak consumer confidence have accelerated the trend towards discount shopping. Consumer preference for cheaper goods is eroding retailers’ pricing power and pinches margins amid sluggish sales growth,” says Claudia Aquino, analyst at Scope.

Against this backdrop, Scope expects revenue for corporates in the sector to grow only in the low- to mid-single-digit range in 2026.

For issuers in Scope’s coverage, average EBITDA margin will remain relatively stable in 2026 having steadied at around 6.8% for non-discretionary retailers in 2025, unchanged from the year before. For discretionary retailers, average EBITDA margin will also stabilise, having fallen to around 7.5% in 2025 from 8.3% in 2024.

Capital expenditure imperatives set to crimp cashflow, pressure balance sheets

“Companies are increasingly likely to boost supply-chain efficiency and expand omnichannel distribution and marketing to maintain competitiveness. While these initiatives promise long-term efficiency gains, they require significant upfront capital expenditure which could strain near-term cashflow,” says Aquino.

Rising competitive pressures and growing need for investment related to the circular economy and digitalisation may further drive consolidation in the sector, while smaller retailers could be forced to exit the market if they are unable to adapt to these structural shifts.

“Our surveys of publicly available bankruptcy information point to an improvement in default rates among larger retail chains but a deterioration among corporates with less than EUR 20m in annual revenue, notably in the fashion and apparel segment,” she says.

At this stage, credit pressure in the sector results less from balance-sheet stress – such as rising leverage, weakening liquidity, and shrinking headroom under covenants – than from the unavoidable increase in cash costs required to remain competitive.

Similarly, the capacity of individual retailers or retailing sub-sectors to absorb these costs and generate returns will determine near-term credit dynamics, including potential balance-sheet pressure stemming from higher borrowing or reduced financial flexibility.

Download the report.