June 30, 2008, 12:00 AM

Moody`s giving more weight to web sales is “a key milestone,

Moody’s choice to give more weight to web sales in rating retailers’ debt gives successful e-retailers a reason to trumpet results and laggards motivation to improve their online performance, says James Okamura, a senior partner at J.C. Williams Group.

The recent announcement by Moody’s Investors Service that it was giving greater weight to online sales in rating retailers’ debt is a significant step that will give successful e-retailers a reason to trumpet their results and put pressure on laggards to improve their online performance, says Jim Okamura, a senior partner at retail consulting firm J.C. Williams Group Ltd.

What makes it important is that the ratings by Moody’s, one of the major Wall Street credit-rating firms, play a big role in determining the interest rates that retailers pay on their debt. The Moody’s announcement in mid-June means a retailer with strong online growth can cut its borrowing costs. Even a small change in interest rate can mean substantial savings, Okamura says.

“Hundreds of millions are on the line with those credit ratings,” he says. “If a retailer can show, even in the face of slow to no growth in stores, that their e-commerce channel is on trend or exceeding trend, that’s huge. It is something of a key milestone in the industry to see the credit-rating companies realizing they have to look at this.”

Okamura expects retailers with strong e-commerce growth will highlight that growth in presentations to lenders and credit-rating firms. “And it will probably put pressure on laggards to do something about it,” he says.

He says the recognition by Wall Street of the growing importance of online sales also could prompt financial analysts to seek greater detail from retailers about their e-commerce results. Some retail chains break out their online or direct-to-consumer sales in financial reports, while others do not.

One of those financial analysts, Colin Sebastian of Lazard Capital Markets, says the move by Moody’s likely reflects the growing role of web sales in total retailer revenue. “It’s also recognition of multi-channel trends overall,” Sebastian adds, “with exposure to the Internet likely providing some protection from sluggish sales in core retail.”

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