The Retail Squeeze- The Story Of 2017 So Far
With Christmas a distant memory, Easter and the first quarter of 2017 behind us and summer and a General Election just around the corner, how are UK retailers shaping up?
You will be aware that 2016 saw many well-known retailers fall upon hard times, not least BHS amidst great controversy, Austin Reed the office-wear retailer and Brantano the value shoe maker (to name just a few) each entering administration. The question is whether this trend in retail hardship is set to continue in 2017?
Regrettably, already this year we have seen a string of renowned high street retailers getting into difficulty. For example, Jaeger, the high street fashion chain, entered administration at the beginning of April. Brantano again entered administration in March and Jones the Bootmaker went through a pre-pack administration in March, being bought by turnaround investors Endless. Agent Provocateur was bought by Sports Direct in a pre-pack administration in March and 99p Stores also fell into administration in March. The Centre for Retail Research reported that by the end of April 2017 there were 15 retail companies experiencing difficulties and failing, in contrast to the total of 30 insolvent retailers for 2016 as a whole.
The Office of National Statistics (ONS) published statistics showing that in the three months to March 2017 there was a decrease of 1.4% in retail spending, the third consecutive monthly decrease in like for like sales; the three months to March 2017 is also the first quarterly decline since the 2013 (Quarter 4) ONS report.
Whilst it appears the Easter period this year resulted in a flurry of bank holiday spending, with the British Retail Consortium (BRC) having reported that the April 2017 UK retail sales performance saw an increase of 6.3% year-on-year from 2016, creating some much needed breathing space for the high street retailers, such respite appears to be short lived.
Why the decline in consumer spending? Arguably, although retail has faired the turbulent results of post-Brexit Britain fairly well to date, it would seem British consumers are feeling the squeeze with rising inflation coupled with weaker sterling, resulting in consumers seeking to save where they can. There is a trend of buying cheaper and moving towards becoming a nation of savvy spenders, and this trend has an impact in the retail sector, with, for example, Debenhams announcing its intention to close up to 10 of its department stores and 11 warehouses.
The profit squeeze on retailers is undoubtedly exacerbated by the increase in rising fuel prices and the UK’s inflation rate is now at its highest level in recent years. Whilst the National Living Wage was introduced this year, resulting in an increase in household income, this also increases overheads for retailers – which either has to be passed on to the consumer or absorbed into what in many cases is already a very thin profit margin.
We have, however, seen a large increase in online spending, BRC reported total (non-food) Online Sales for April were up 10.3% on 2016 – fashion retailer BooHoo almost doubled its profits in the last financial year. In a world that is becoming increasingly mobile by the day, consumers are certainly drawn to online retailers. The significant popularity of online sales at the current rate will inevitably reduce the market for traditional high street shops.
With further economic instability likely ahead of the General Election on June 8 and no signs that sterling is set to strengthen, increasing retailer costs will either have to be passed on to the consumer or absorbed in margin reduction. It would seem that the trend in lower consumer spending is here to stay, evidenced in high street brands such as Next, who reported an 8.1 per cent decline in full-price store sales in the three months leading up to the end of April resulting in a sharp decrease in its share price. The poor results for Next may be representative of the “squeezed-middle” consumer, who is now having to buy cheaper goods in order to make ends meet.