Matter of simple arithmetic as austerity and Brexit hit the high street

AS the dust from the latest annual flurry of festive trading updates begins to settle, what is already crystal clear is that this has been another very tough Christmas for many retailers.

We should not be surprised, with the economic misery from years of savage austerity now compounded royally by the Brexit fiasco.

Some big names have issued profit warnings, including department store chain Debenhams, menswear retailer Moss Bros, and Mothercare.

Venerable high street institution Marks & Spencer and department store group House of Fraser yesterday posted year-on-year falls in sales for the key festive trading period.

Of course, as with any Christmas trading season, there have been winners as well as losers. That said, the winners have generally delivered solid rather than spectacular sales increases.

Among the winners has been Next, which reported that its full-price sales in the 54 days to December 24 were up by 1.5 per cent on the same period of the previous year. This was much better than the 0.3 per cent dip that had been forecast by Next in November.

Next was able to raise its central that get their online offerings correct should generally prove more resilient or successful than those that do not.

Increasingly crucial for retailers will be the option for customers to combine their interactions with websites and physical stores, in terms of swift clickand-collect and return options.

That said, you only have to look at the speedy and cheap delivery to the Amazon Locker service to realise just how fast on their feet the traditional retailers are going to have to be amid sweeping structural change in the sector. It is also worth noting that Moss Bros, although it had a tough festive period, offers customers an impressively seamless combination of online and physical store operations for collections and returns. And House of Fraser offers fast delivery to store for online customers.

While structural change in retailing is probably accelerating and there will always be winners and losers, the key thing for the sector as a whole continues to be the amount of money people have to spend.

Retailers can adapt as much as they like to the technological revolution but they will still find life very tough if the consumer backdrop is difficult.

This is where the big problem lies.

It is a matter of simple arithmetic. Household finances have, in general, been under fairly relentless pressure since the global financial crisis got under way in earnest in autumn 2008.

In the ensuing deep recession, many workers either agreed to, or had imposed upon them, pay freezes or cuts. In general, it was a time when many employers and staff worked well together to get through the crisis.

After such a blow to household finances, there would in any normal economic cycle be a fairly quick return to more usual conditions.

That has not happened this time. To compound the problem, the Conservative Government put in savage austerity measures after coming to power in 2010, with huge cuts in welfare provision and sweeping public sector pay caps that continue to make life miserable for millions of people. The Conservatives also dealt a further major blow to household finances, and to the retail sector, by hiking value-added tax.

The Tories’ failure to deliver the economic growth they promised has created an environment in which many employers have over recent years either been unable to, or chosen not to, award significant pay rises. And an ongoing erosion of employment rights has not helped staff bargaining power.

As if all of this were not bad enough, along came Brexit.

The pound plunged on the UK’s diminished economic prospects. This has sent inflation surging and, against a backdrop of weak nominal pay settlements, the fall in real wages has resumed. Falling real-terms pay has been a very common economic feature since the Conservatives came to power, even if some Tories managed to persuade many people that the drop in living standards was somehow the fault of the European Union.

Falling real wages mean people have less to spend. And those with some money are cautious, given all the Brexit uncertainty and the weak economy. Many retailers, winners and losers of the latest festive season alike, have flagged the tough economic conditions.

The miserable economic climate in the UK has prevailed for a while now. The fact we have become used to it is cold comfort. The problem is, while you can see a range of hazards that would make things worse, a catalyst that might boost the economy and ease the woes of households and the retail sector remains as elusive as ever.