The Heatwave – benefit or burden for the UK retail sector?
Retail sales figures from the BRC for July, a full-year trading update from ScS and Q1 figures from New Look and Pets at Home.
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- Green shoots of recovery at New Look post CVA? In Q1, underlying profit rose 19% to £14.4m, while adjusted EBITDA edged up 1.5% to £27.6m, helped by cost savings to the tune of £70m. But total revenue fell 2.7% to £329.4m and New Look brand like-for-like sales were down 4%. Cost-cutting is one thing, but the key to longer term recovery will be restoring growth to the top line.
- Strong performance from Pets at Home in Q1. For the 16 weeks ended 19 July, overall revenue increased by 8.1% to £277.4m. This includes a 6.9% retail revenue growth and an 18.4% rise in veterinary group revenue to £32.4m. Over the period, like-for-like sales were also up by 5.3%.
- A tough year to date for big-ticket furniture retailers. In a full-year trading update ahead of its preliminary results, upholstery retailer ScS reported 0.2% like-for-like growth for the year to 28 July. But it was definitely a year of two halves, with like-for-likes up 2.2% in H1, but down 2.6% in H2. Trading has undoubtedly been depressed by the extreme weather – unseasonably cold weather in the early part of the year giving way to a heatwave.
Stephen Springham, Head of Retail Research:
The weather. The oldest chestnut in the retail book. The most hackneyed excuse for retailer under-performance. Yet still a major driver of retail sales, at least in the short term. And one that plays out in very contrasting ways across different retail sub-sectors.
Take this Summer’s heatwave. A major boost for retail sales or was it simply too hot to go shopping on the high street or retail park? An element of both.
Taking a holistic view of the entire retail market, hot weather definitely provides a fillip to overall retail sales. Figures this week from the British Retail Consortium (BRC) back this up.
Total retail sales in July were up 1.6% year-on-year (+0.5% like-for-like). Of course, the media picked up on the fact that the rate of growth was lower than June (+2.3% overall, +1.1% like-for-like), but these are still strong figures. When the official ONS figures come out in a couple of weeks, they are likely to be higher still (ca. +4% value +2.5% volume).
The key message from these figures is a positive one: the UK consumer continues to spend, despite all expectations to the contrary. But the caveat is that this spend is not equally distributed between sub-sectors and channels.
The grocery sector is clearly the biggest beneficiary of hot weather (BBQs etc) and this is clearly reflected in the BRC figures. For the three months to July, food sales increased by 4.5% overall and by 3.1% like-for-like.
As we analyse in-depth in our latest Foodstore Newsletter (see accompanying link), the recovery in grocery markets is a sustainable, rather than weather-dependent one. But hot weather certainly doesn’t go amiss either.
The picture for non grocery is far less clear-cut. For the three months to July, non food sales increased by just 1.2% overall and by 0.2% like-for-like.
And clearly there are vast polarities between the various sub-sectors that comprise non-food sales – these may not be apparent in the headline BRC release, but certainly are in the detail of the ONS equivalent.
Clothing (the largest non food sub-sector) is definitely weather-sensitive. For fashion retailers, it’s not just a case of the weather being good, it’s a case of weather being right, at the right time.
The dream scenario is a spell of hot weather come February/March/April to coincide with the launch of Spring/Summer ranges and then a sharp transition to colder weather in August/September/October for the Autumn/Winter ranges.
This year has not played out that way – the heatwave came too late. Yes, it helped with Summer sales, but would have been far better when retailers were trading at full price. The heatwave has therefore proved good for clothing sales, less so for margins. Q2 clothing sales were up 1.4% (although footwear sales curiously slumped 7.7%).
Big ticket furniture has been one of the biggest losers of the retail sub-sectors as temperatures have soared in recent weeks. In stark contrast (and poignant given Homebase’s likely CVA), the DIY market has seen a huge bounce back in recent months.
DIY sales were up 13.0% in Q2 – compare this with a decline of -1.8% in Q1 (and a -10.5% slump in January alone).
Economists are generally very sniffy when it comes to weather and the influence it has on retail sales. Aside from the fact that it’s something they can’t predict and build into their models, the theory is that its effect is only temporary and that it can only bring forward or defer spending that would be made anyway.
That may be true for the overall consumer spending pot, but not how it is allocated out. If the weather is good, retail retains or increases its share of wallet. If not, it loses it and doesn’t necessarily get it back at a later date.
But, for all that, it’s still a great excuse for under-performance.