The retail note - 1 December 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- Amidst all the hype, hyperbole and hullaballoo around Black Friday, a few more sobering reminders of the harsh challenges many UK retailers face. Three retail operators have entered administration over the last week: furniture retailer Multiyork (with ca. 50 stores) and sister chain Feather & Black (with ca. 25 stores) have appointed Duff & Phelps as administrators, while footwear retailer Shoon has collapsed for a second time (the previous time being in 2012).
- In a bid to head off concerns from suppliers, electronics retailer Maplin has released its full-year results a month early. For the year ended 18 March 2017, overall sales were up 0.5% to £236m, with like-for-likes up 0.3%. EBITDA was £12.3m, in comparison to £13.2m the previous year, which the retailer attributed to substantial investment across the business. The announcement came in the wake of concerned credit insurers reportedly cutting exposure to Maplin.
- Strong sales performance at Pets at Home in H1, with group revenue up 6.0% (+3.9% like-for-like) to £441.3m. Merchandise was up 4.6% to £379.5m and services up 15.3% to £61.9 m. Tiling specialist Topps Tiles had a challenging full year, reporting a fall in profit and revenue for the 52 weeks ended 30 September 2017. Profit before tax declined by 15% to £17.0m, while group revenue was down 1.5% (-2.9% like-for-like) to £211.8m. However, trade has picked up considerably since the year-end, with like-for-likes up 3.2%.
Stephen Springham, Head of Retail Research:
Retailing is for life, not just for Christmas…
The spotlight invariably falls upon the retail sector at this time of year and the question as to whether it will be a good or bad Christmas becomes a national pastime. Armchair analysts come out in force and the general opinion is that the festive period will either make or break UK retail.
Is there too much emphasis placed on Christmas in the retailing calendar? The ‘all-important Golden Quarter’ is no doubt a vastly over-used expression, but the fact remains that it is the busiest time of year for UK retailers. But most do not stand or fall (or indeed fail) on account of a good or bad festive trading period, but as a sector under such intense pressure, the margins (figuratively and literally) can be very fine.
The Christmas trading period is notoriously difficult to read at the best of times. These are not the best of times and this year is harder to call than most. The messages that are already coming out are not so much mixed as entirely contradictory.
Be that as it may, there is no denying that the final quarter of the year got off to a slow start. October coincided with the start of an exceedingly strong comparable base last year and these comps will not get any easier as the quarter unfolds.
If focussing on the data alone, many of the challenges UK retail faces over Christmas are mathematical. In simple terms, last year’s growth will be hard to top and any growth at all (volume especially) will be extremely hard to come by. Last year’s phenomenal rates of growth will not be matched.
Our predictions for Christmas 2017:
- Christmas 2016 was incredibly strong, making for a formidable comparative this year
- Oct – Dec 2016: value +5.6%, volumes +6.2%. Dec 2016: value +4.9%, volumes +5.1%
- There will be retail sales value growth this year, but volume growth will be more challenging
- Any volume growth at all is good growth
- Oct – Dec 2017: value +2.5% to +3.0%, volumes -0.5% to +0.5%
- Dec 2017: value +1.0% to +2.0%, volumes -0.5% to +0.5%
- Christmas will come late, making for a nervous waiting game for retailers
- The extent to which margins have come under pressure will not be immediately apparent.
In the final analysis, Christmas 2017 may be less about the actual numbers. The comparison with the unheralded boom in the corresponding period last year is going to point to a deceleration at best, a volume decline at worst.
Rather than the hard numbers, Christmas is actually about the ongoing bigger picture – which is one of relentless challenge, the easing of inflationary pressures failing to offset wider Brexit uncertainty and the very real headwinds of another rise in the Living Wage and a business rate revaluation that has yet to fully work its way through the system.
Even in the unlikely event of a disastrous festive period, the UK retail sector is still likely to record value growth of more than 4% for 2017 as whole. Even stripping out inflation, retail sales volume growth is likely to be between 1.5% and 2.0%, exceeding overall forecast GDP growth of 1.5%.
Within the data minefield, one thing remains certain: the UK retail sector has once again out-performed the wider economy, whatever the outcome of Christmas.
Click here for the full blog on Christmas 2017