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Poor old January, it doesn’t have much going for it does it? Just about the coldest, wettest, darkest time of year in Britain, it’s also fast becoming the retail sector’s nemesis too, the moment when high-street chains up and down the country come clean over trading. I might not have quite the elephantine memory of some investors, but it seems to me that January has become one high-street horror show after another, and many are bracing themselves for what could be a hugely challenging year ahead.
The shares of many UK retailers are already in freefall, rattled by a profit warning from Currys and PC World owner, DSG International, and a limp performance from Land of Leather. Even Next, a long-time City darling, spooked investors with a cautious outlook, even though its sales numbers were OK. The fear is that many more dismal updates could follow given that so many retailers rely on the Christmas period for much of their profits. Furniture, DIY, clothing, electricals, even health and beauty products have failed to escape the consumer spending crunch that could trigger further damaging store closures and job cuts.
This veil of gloom was hardly lifted with this week’s publication of the latest retail snapshot from the BRC (British Retail Consortium), showing December something of a nightmare before Christmas, and the worst festive run-in since 2004. Last month’s growth of 0.3% was well down from November’s pace of 1.2%, and far below the 2.5% increase seen in December 2006, while three-month growth rates – which some argue are more revealing of the true state of Britain’s high-street climate – slumped to 0.8% from 1.8% in November, on a like-for-like basis (which strips out new stores), and from 3.8% to 2.8% for total sales.
Such numbers make for grim reading, and even the BRC’s director general, Kevin Hawkins, admits that things are ‘worse than we expected’.
Retail stocks have been on the backfoot for weeks as fears have grown over lacklustre seasonal sales, sparked by worries over a potential property market slump, among other things. Still, if you think house prices are wobbling now, just wait until cheap fixed-rate deals secured in the borrowing boom a couple of years ago start running out, and recent interest rate rises add a couple of hundred quid a month to mortgage repayments, then we’ll really start feeling the pinch.
I visited the huge Bluewater shrine to materialism a few days after Christmas, doing my own bit of journalistic sleuthing (OK, I wanted to pick up a couple of bits myself!) and found the place packed out with people. However, while at first glance I might easily have swallowed the theory that shoppers were eagerly emptying their wallets on DVDs, designer shoes and duffel coats in a bargains buying blitz, the vast swathes of folk leaving the centre without a bulging carrier bag full soon dawned. Even I found precious little worth my cash, and I ended up gormlessly strolling about the centre like an extra from Dawn of the Dead. The only thing I did end up buying was a couple of cups of overpriced espresso at the fancy coffee bars (although this was clearly not enough to save Starbucks chief exec Jim Donald from the chop this week).
Funnily enough, however, UK consumers have an incredible habit of combating such gloomy times, showing a bit of the Dunkirk spirit and shouldering the extra burden, financial or otherwise, with typical resolve.
But clearly an update on trading tomorrow (or yesterday, by the time you read this) from blue-chip retailer Marks & Spencer is likely to be crucial to sentiment toward retail stocks. M&S shares tumbled 19.5p to 498.5p at the start of the week, so perhaps investors are already expecting the worst. But then again, the City often does, only for its flagrant pessimism to prove wide of the mark.