British retailers start to feel Brexit pinch

Shoppers also forego retail therapy as heat wave dents appeal of winter clothes shopping

REALITY is finally starting to bite for Britain’s clothing and home furnishings retailers. Although there was plenty of commentary from Next, John Lewis and Wm Morrison Supermarkets that Britain’s vote to leave the EU was having little impact on spending, some of the results and outlook statements published this week were less rosy.

Until now it’s been a case of when the going gets tough, Brits go shopping, snapping up everything from off-the-shoulder dresses to flat-screen TVs.

But the raft of results from some big retailers were more sobering and might well provide a glimpse of what is to come.

The grimmer news was underscored by official data showing UK sales dipped 0.2% in August from the previous month.

Either way you look at it — near term or longer term — prospects aren’t great for British shops.

H&M’s August sales missed analysts’ estimates, while Next said that trading since July had been volatile and challenging.

The John Lewis Partnership’s profit fell a whopping 75% in the first half of its financial year.

Although that was mostly due to one-off losses and investments, it also reflected a price-competitive market.

Nonfood retailers also warned of challenges ahead.

Next and John Lewis department stores flagged the prospect of higher prices for consumers next year — the slump in sterling following the vote to leave the EU raises the cost of buying dollardenominated stock from Asia.

That’s tricky for retailers, because thriftier consumers might not literally or metaphorically wear higher prices.

John Lewis expects shops to absorb much of the increased sourcing costs. That’s also the picture from Associated British Foods’ Primark.

However, Next will try to pass the higher costs on to its customers, preferring to take the associated hit to sales than hurt its margins.

Next was also the first to warn of a wider impact from inflation: spending being squeezed next year by higher prices.

That red flag is significant, because pressure on take-home pay was one of the factors that hurt retail sales during the most recent economic downturn.

But it’s not just longer-term pressures that make the outlook so difficult.

The recent mini heat wave in the northern hemisphere is also putting consumers off buying new coats or sweaters, which is bad news for the crucial autumn-winter fashion collections that have just started arriving in stores.

Simon Wolfson, CEO of Next, warned that the weather would have a “massive” impact on sales, and the longer the warm spell went on, the worse the impact.

And it may not just be the weather that is weighing on shoppers.

According to Richard Hyman, an independent retail analyst, there might be some Brexit impact from the higher cost of foreign travel for summer holidays.

He estimates that the weaker sterling added £500-million (R9.5-billion) to the total cost of Britons’ vacations.

With those credit card bills now landing, that’s money that’s not being spent in shops.

Amid the brewing maelstrom, Marks & Spencer looks vulnerable as clothes and home furnishings accounted for 37.5% of sales in its last financial year.

And Britain’s biggest clothing retailer by value is in the midst of a big drive to revive sales, so the hot spell could not have come at a worse time. The shares fell 2% on Thursday. H&M also faces an uphill battle. It’s fighting a burst of consumer caution as well as nimbler rivals — particularly Primark, which is simultaneously undercutting it while expanding internationally.

As for Next, where shares fell 4.6% on Thursday, it should be more resilient, thanks to its large online business, quality management and cash generation.

It expects to generate £350-million of surplus cash this year, giving it a cushion against trouble even as it uses some of it to boost business from its more profitable credit customers.

That should all help it to weather the storm — even one that involves plenty of sunshine.