Author Mark Richards
The fortunes of the UK High Street are closely tied to Christmas trading, but with less than seven weeks to go the numbers are not looking good – and the online competition is getting fiercer…
As I write this article there are just 47 days to go until Christmas. So far, I have not yet heard the traditional fanfare announcing the arrival of the festive season: but it is only a matter of time. I am, however, already starting to see a much more modern indication that Christmas is coming – one which does not bode well for the UK High Street.
I am writing this in my office in what used to be a natural history museum. Now it is a ‘creative centre.’ It is home to around 40 businesses, about 100 ‘creatives’ and a reception that is just starting to crack under the strain.
My office is five minutes from the town centre. I could easily do my Christmas shopping by walking into town. But I won’t. As my Christmas shopping largely consists of buying for my three grown-up children it is dictated by their ‘lists.’ Something they once wrote out by hand but which now arrives by e-mail, complete with very convenient links to Amazon – a company which delivers more than 600m parcels in a year and expects to ship over a billion Christmas gifts.
The numbers are not looking good for the UK High Street
The British Retail Consortium reported that sales of non-food items grew at their slowest pace since records began in October, as families opted for ‘days out’ over shopping. Non-food sales grew by just 0.2% in October, the weakest growth since the BRC began measuring the category in 2011. The figures “would give cause for concern” with “clothing sales particularly badly hit.”
Coming less than two months before Christmas ‘cause for concern’ is an understatement. BRC Chief Executive Helen Dickinson said that families had prioritised outdoor excursions and experiences over half-term and that increasing inflation was making people much more careful with their purchases.
Betting against Debenhams
To put those figures into perspective, let us look at the trading prospects for two traditional giants of the UK high street: Debenhams and Marks & Spencer.
If you are a devotee of the financial pages you may recently have seen headlines saying, ‘Short sellers bet against Debenhams.’ That is not good news for retail: let me explain.
Short selling is very simply the practice of selling shares you do not own in the hope of buying them back at a lower price. If the shares go down you make money: if they go up you lose money.
Currently, Debenhams shares are around 42p each. But the City is pessimistic about Debenhams’ prospects – and by extension the prospects for retail generally. This year the amount of ‘short-selling’ of the retailer’s stock has risen to a four year high, with the hedge funds leading the way and – according to the Financial Conduct Authority – borrowing heavily to do so.
Long-term, the future for Debenhams may be brighter: its new chief executive, Sergio Bucher, is a former Amazon executive so he may well improve the company’s online fortunes. On the UK high street though, the company is tied into a lot of long leases and competition among clothing retailers in the final quarter of the year is expected to be intense. As one analyst put it, “The UK’s shopping habits are changing faster than Debenhams can react.”
For the time being Debenhams’ fortunes are inextricably linked to those of the high street – and hence the hedge funds queuing up to make millions from betting against the company having a successful Christmas.
The story at M&S
What about that other bastion of town centres, M&S? Sadly there are more ominous noises. Their clothing and beauty boss has just resigned, which can hardly be a good sign in the run-up to Christmas as the company looks to boost flagging clothing sales and revamp its product ranges.
Annual profits at M&S fell by almost two-thirds last year, as the company completed a ‘radical overhaul’ of the business. Has it worked? Yesterday I went to M&S to place our annual Christmas food order: it took 25 minutes for the staff to work out how to log it into the computer and process the order. How long would it have taken with Amazon? A fraction of the time.
It is a widely accepted view that M&S have been ‘bailed out’ by their food sales over recent years. Now it looks like even that part of the business may also be facing what the company euphemistically describe as ‘strong headwinds’ and the rest of us describe as online retailers.
M&S are to open fewer Simply Food stores next year after like-for-like sales fell by 0.1% in the first six months of the year. The fact is that whatever food you want you can buy it online – and with rapid advances in vacuum and other packaging technology more and more of us are going to do that. Even a very simple search – ‘buy bacon online UK’ – returns a host of ‘award-winning’ companies ready to pop a pack of Smoked Ayrshire Streaky through your letterbox.
It looks like a bleak midwinter for retail…
You do not have to look far to find more doom and gloom. New Look reported a loss of £10.4m in the six months to September 23rd as more and more traditional retailers struggle in the face of online companies such as Asos.
The end of this month sees ‘Black Friday’ on November 24th. Traditionally Black Friday is the day after Thanksgiving (the fourth Thursday in November) in the US and is regarded as the day which marks the start of the Christmas shopping season – when retailers finally move into the black (into profit) for the year.
Many retailers will be offering special deals and in the States, it is common for stores to open ridiculously early in the morning – 4 am or 5 am is the norm. But Amazon will be running ’10 days of Black Friday’ deals from November 17th: the question is, will shoppers have any money left to spend in the shops?
Retailers in the UK are now calling on the Chancellor to deliver ‘a shoppers’ Budget.’ But shopping habits are changing: no wonder both the bean counters and the gamblers are betting against the UK High Street. You may as well travel back in time 100 years and demand that the Right Honourable Andrew Bonar Law delivers a candlemakers’ Budget…