Not everyone was a winner on the UK high street over Christmas
Shops selling mid-market clothing and other discretionary purchases feel the squeeze
Ahead of results from Tesco, Marks & Spencer and John Lewis, winners have so far outnumbered the losers.
The winners and losers are now beginning to emerge in the British retail sector after one of the toughest-ever Christmas trading periods.
Ahead of “Super Thursday” this week, when Tesco, Marks & Spencer and John Lewis are all scheduled to report, winners have so far outnumbered the losers, with Next leading the pack.
The fashion chain was the first to update the City on its festive trading, reporting an unexpected increase in sales after benefiting from the cold snap just before Christmas.
Next’s performance online was particularly strong, with sales growth of almost 14 per cent, while its high street chain saw sales slide by just over 6 per cent. Still, the overall sales beat was enough to allow the group to raise its profit expectations for the full year.
Morrisons was another winner. The UK’s fourth-largest supermarket chain kept its core prices down and was rewarded with a 3.7 per cent jump in sales over the Christmas and new year period. Growth in its premium ranges was particularly strong, demonstrating once again that cash-strapped shoppers are still willing to splash out for special occasions if they can.
Debenhams leads the losers after hitting the sector with a stonking profits warning last week. Sales over the festive period slid 2.6 per cent and the group warned that more store closures were likely in the year ahead. It expects profits in the range of £55 million-£65 million (€62.4m-€72.7m) – well below the £80 million-plus the City had been hoping for.
Mothercare was also forced into a profit warning after dismal Christmas trading saw its sales go into reverse, not only on the high street but also in its online operation. It now expects profits of £1 million-£5 million, a fraction of the near-£20 million it made last year.
Also in the losers camp is House of Fraser, the department stores chain owned by Chinese conglomerate Sanpower, with an outlet in Dundrum Town Centre in Dublin. Although it is not due to report its figures until Thursday – along with half the retail sector – the group has had to write to some of its landlords to ask for their “support” in the form of a rent reduction.
It is also attempting to cut its rental bill by reducing the size of some of its stores, shaving off “surplus” space such as basements or top floors.
Life is hard
Winners or losers, there is no doubt that life is tough and getting tougher for Britain’s retailers as consumers cut back their spending on non-essentials in the face of higher prices and squeezed incomes.
Retail veteran Theo Paphitis, best known for his appearances on the BBC programme Dragons’ Den, said this Christmas was the worst he had ever experienced. “I have never seen it so hard and unforgiving, where the shopper will punish you if you take your eye off the ball,” he said.
His own Ryman stationery and Robert Dyas houseware chains managed steady, if unspectacular, performances, but Paphitis blasted the government for what he saw as its failure to support the industry in terms of business legislation, policy and taxation.
“With very little interest shown by government in this key economic pillar, it really does feel like retail as we know it is creeping closer and closer towards the precipice,” he warned.
Chilling words – and Paphitis is not alone in his gloomy outlook. The number of retailers going bust rose last year for the first time in five years – up more than a quarter to 118 insolvencies – and the KPMG/Ipsos Retail Think Tank (RTT) is warning of more casualties this year.
At best, it says, the retail industry will flatline in the coming 12 months. It also expects the divide between food and nonfood retail to become more pronounced as higher food prices continue to draw spending away from other discretionary items. We have to eat, in other words, while we can manage without new clothes, cars or furniture if we really have to.
Casualties are inevitable, the RRT warns, and it sees the battle for survival prompting increased levels of “defensive consolidation and creative collaboration” among retailers.
That process was already in evidence last year, with Amazon’s shock takeover move on Wholefoods in the United States and Tesco’s equally surprising multibillion-pound move on wholesaler Booker in the UK.
The winners in 2018 will be the value retailers, while those at the luxury end should also be able to weather the storm. It’s those selling mid-market clothing and other discretionary purchases that will really feel the squeeze.