Retailers floored by new spending pattern

Emma-Lou Montgomery
Emma-Lou Montgomery
Fidelity Personal Investing19 January 2018

Oh the woes of being a non-food retailer. Today’s retail sales figures show the biggest fall in the UK retail sector since the direct aftermath of the 2016 Brexit vote. Not that you need to tell the beleaguered retailers that. They’ve seen it first hand and are still reeling from the consequences.

We’ve heard of plenty of tales of woe from the high street and they continue to this day. Today Carpetright saw its shares almost halve in value after it issued a profit warning on the back of what it described as no less than a “severe” decline in footfall. In its trading update the company said the post-Christmas period has been “significantly behind expectations”. It now expects to make a £2 million profit for the full year, from £6 million previously.

And 2018 is not looking any better. In the 11 weeks to mid-January, core like-for-like flooring sales are down already by over 7%. This is not the first note of gloom from Carpetright. In December, it warned profits would likely be weak, and in October, it admitted problems with its range of beds.

The bad news from the carpet and flooring retailer was swiftly followed by equally glum figures from women’s fashion retailer Bonmarché. It suffered a 5.5% fall in sales over the Christmas period. In a trading update the company said like-for-like store sales in the three months to the end of December were 9.7% down on the previous year.

There’s plenty of evidence that consumer spending growth did slow during 2017. Shoppers undoubtedly tightened their belts, as higher costs brought on by the weak pound and sluggish wage growth, hit home.

Consumers still had an appetite for spending on food and drink though, as the supermarkets have shown. According to data from market researcher Kantar Worldpanel, consumers spent £1 billion more on groceries in the final 12 weeks of last year than in 2016. That’s the equivalent of every UK household spending an average of £1,000 on groceries in the three months before Christmas.

So, it really has proved to be a game of two halves for the retail sector. And that’s borne out by findings by the British Retail Consortium. It says that over the three months to December last year, sales of non-food items fell 3.7% - marking their steepest drop in five years. By comparison, food sales for the same period rose 4.2%; their biggest rise in six months.

Unless of course, these non-food retailers jumped on the Black Friday bandwagon. Because those that did have a different story to tell. It might not be quite as simple as saying consumers didn’t put their hands in their pockets at all when it came to non-food items. Retailers that embraced the new Black Friday-inspired sales period had a jolly time. Primark owner Associated British Foods says the low-cost fashion chain saw record festive sales, John Lewis had a bumper Christmas and so did Majestic Wine.

The prevalence of Black Friday sales has simply moved the goal posts. Retailers have had to be ready to tap into this phenomenon and get the deals flowing and their tills ringing at the right time. Those, like Mothercare, who defiantly stuck to the traditional end of season sales pattern and kept prices high until the festive season was over, paid the price. Today’s bargain-hunting shoppers buy when the deals are there in front of them.

And figures from the Office for National Statistics bear witness to that. It has seen a distinct shift towards earlier spending. It shows that the quantity of goods bought fell 1.5% in December after a “strong” month in November. Meanwhile, the year-on-year rate fell to 1.4%, from 1.5% the previous month.

According to a Reuters poll, economists had been expecting a 0.6% fall month-on-month, and growth in the year-on-year rate to 3%.

On a quarterly basis, growth also slowed. Sales in the last three months of the year were just 0.4% higher than the previous period. That’s the slowest three-monthly rate of growth since the sharp drop at the start of 2017.

No doubt Bonmarché, which has oft been ribbed for blaming the climate for its woes, and plenty of others who have suffered a similarly gloomy spell, will be keeping a weather eye on the whole sector in 2018.

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