Brexit worries and bad weather cloud the Christmas high street
Retailers vying for customers in the last full week of trading before Christmas are in for a tough time according to the latest predictions, with footfall expected to fall by about 3% next week as cash-strapped shoppers rein in spending.
The forecast by retail analysis firm Springboard adds to the bleak picture facing the sector in the key festive trading season, as consumers uncertain about what Brexit will mean for the economy and their finances cut back on gift-buying this year.
“We are not anticipating it will be a bumper week by any means,” said Diane Wehrle, insights director at Springboard. “Consumers are feeling nervous about what might happen in the new year, particularly around Brexit. So people are not prepared to splash out this Christmas and are reining back on spending.
Storm Deirdre batters UK and adds to retail woe
“It’s not because people are spending online; they’re just not spending,” she added. “We’re all facing risks as rail fares and utility bills rise and we’re all aware of that.”
She said rising wages in recent months were little comfort for consumers who dipped into savings and took on extra debt during a prolonged period of below-inflation pay rises since the 2008 crisis.
Retailers battling it out to win customers in the final shopping days before Christmas are already offering big discounts, after a dreadful month in November that Sports Direct boss Mike Ashley described as “the worst on record, unbelievably bad”.
“No one could have budgeted for that,” Ashley told City analysts last week as he presented the sports retailer’s half-year results. “Retailers just cannot take that kind of November. It will literally smash them to pieces.”
The expectation that footfall will drop again in the week to Saturday 22 December follows a dire weekend for Britain’s high street, who were put off from venturing out by plummeting temperatures and freezing rain. On Saturday alone, footfall on high streets dropped by an estimated 9% compared with the same time last year. It was down about 8% if shopping centres and retail parks are included.
Trouble on the UK high street
Gourmet Burger Kitchen: The upmarket burger chain wants to close 17 of its 85 restaurants via an insolvency process known as a company voluntary arrangement (CVA)
House of Fraser: The department store chain is expected to close about 12 stores after being bought out of administration by Mike Ashley. It had agreed a CVA under which 31 stores were to close, but this lapsed on administration.
Homebase: The DIY chain is closing at least 42 stores after completing a CVA organised by new owner Hilco. The restructuring expert bought the DIY chain for £1 from Australia’s Wesfarmers who botched an attempt to bring its Bunnings chain to the UK.
Poundworld: The discount retailer has closed all its 355 stores, with the loss of 5,100 jobs after falling into administration in June.
Cau: The owner of the Gaucho and Cau steakhouses fell into administration in July leading to the closure of all 22 Cau restaurants, with loss of 750 jobs. The groups lenders have since bought the 16 Gaucho outlets.
Mothercare: The chain is closing 60 of its 137 outlets after agreeing a CVA in May. Additional closures in July mean 900 jobs will be lost.
Carluccio’s: The Italian chain secured a CVA to close 30 of its 99 restaurants in late May.
New Look: The chain is closing 85 stores in a restructuring plan announced earlier this year. Its chairman, Alistair McGeorge, said the future of a further 39 stores was in doubt as talks with landlords continued.
Carpetright: The retailer obtained a CVA in April to close 92 of its 409 UK stores in September with the loss of about 300 jobs.
Prezzo: In March the Italian-themed restaurant group secured a CVA to close 94 of its 300 restaurants, with the loss of 500 jobs. Rent cuts were agreed on a further 57 locations.
Jamie’s Italian: The chain closed six locations in 2017 and this year agreed a CVA to close about a third of its 35 loss-making outlets.
Byron: The upmarket burger chain is closing up to 20 of its 67 restaurants after a CVA agreed in January.
Debenhams: The under-pressure department store chain has said it could close up to 50 of its 165 stores stores and wants to get rid of space at 30 more by bringing in gyms and other services.
M&S: The high street stalwart wants to close 100 outlets – a third of its main stores by 2022 as part of a ‘radical transformation’ plan.
Wehrle said that much of the trade lost on Saturday was unlikely to be fully made up on subsequent days, because people had other plans for those days or found alternative gifts, such as buying someone a concert ticket or a day out.
However, Rachel Lund, head of insights and analytics at the British Retail Consortium, said that at this point in the festive shopping season it was still all to play for: “While we have seen a slow start to the Christmas period, changing technology and shopping habits means that many consumers will be leaving their shopping to the last week before Christmas – historically the most important for retailers.”
Big high street names including Primark, John Lewis and Superdry have all warned that trading in recent weeks has been challenging, and more retailers are expected to follow. Budget fashion chain Bonmarché last week said any hopes of a full-year profit had been wiped out after “unprecedented” trading conditions on UK high streets.
Confirming the trend, Visa’s latest UK consumer spending index found that spending fell by 0.7% in November, compared with a year earlier, as people stayed away from shops. It followed a 0.2% fall in October, according to the report published on Monday.
Spending in stores dropped 0.9% last month, while the pace of growth in online spending slowed to 0.4% in November, from 2.6% in October.
Visa’s report showed the biggest drops in spending were on transport and communication, clothing and footwear, and recreation and culture. The best performing sectors were hotels, restaurants and bars, followed by food and drink retailers.
“Despite the lure of Black Friday, consumer spending slipped again in November, as it has in seven of the past 11 months,” said Adolfo Laurenti, an economist at Visa.
“Although we have seen some easing in inflationary pressures and an improvement in wages and earnings, consumer confidence has deteriorated further, as uncertainty continues to surround Brexit. Economic conditions are likely to remain challenging for retailers, at least in the short term.”
Part of the shift towards lower spending involves consumers looking for the “less stuff” options – increasingly shunning plastic goods and overly packaged items, according to Tim Hunt, co-editor of Ethical Consumer.
He said: “We anticipate that consumers will be focusing on making ethical shopping choices more than ever this Christmas in response to the rise in environmental concerns we’ve seen growing this year. Most recently, consumers have been alerted to the negative impact of palm oil and are looking for sustainable palm oil, or palm oil-free products.”
In 2017, spending on second-hand clothing for environmental reasons increased by 22%, according to a report by Ethical Consumer, while spending on ethical food and drink rose by 16%.
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