Food retailers have generally been resilient to the downturn given the counter-cyclical nature of their products while, the pace of negative rating actions for non-food retailers has slowed in the past year.

Given the more positive outlook for the Eurozone economies in 2010 versus 2009, the industry outlook may be stabilised in the medium term, but this will ultimately be a factor of consumer confidence, says Moody's Investors Service in a new report.

The report, "European Retail Industry Outlook," expresses the rating agency's expectations for fundamental credit conditions in the industry for the next 12-18 months.

Moody's recognises that many European retailers have adopted more conservative financial policies in the past year to cope with the industry downturn. These policies include: the reduction of capital expenditures, with an increased focus on maintenance rather than growth; fewer share buybacks; and ultimately, in a few cases, (iii) dividend cutbacks or suspensions.

"However, Moody's believes that, once the market environment revives, companies are likely to resume more aggressive policies, notably in terms of growth investments, and potentially acquisitions," says Richard Morawetz, a Vice President-Senior Analyst in Moody's Corporate Finance Group and author of the report.

A number of other factors have impacted the sector in the past year. Results have been significantly affected by foreign exchange volatility, not only in emerging markets, but also in the UK, with the fairly precipitous decline in sterling in Q4 2008.