As we head for its most crucial shopping period in the wake of Mothercare and Mamas & Papas collapsing into administration, I make no apologies for revisiting the UK’s retail sector.
Following last month’s Brexit Halloween deadline and with Black Friday, Cyber Monday and Christmas ahead of us retailers have reportedly stockpiled seasonal products earlier than usual but the consumer uncertainty remaining no one knows how much stock will remain unsold in the new year.
The Confederation of British Industry, the country’s leading business lobby group, said retailers’ stock levels compared with the volume of expected sales had risen to the highest point in October since it began compiling retail sales estimates in 1983.
This is against a backdrop of dramatically narrowing profit margins, falling consumer confidence and repeated demands for comprehensive reform of business rates falling on seemingly deaf Government ears.
A new report by the global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, has found that store-based profit margins for the top 150 UK.retailers have more than halved in less than a decade – dropping from 8.8 percent as seen in 2009/10 to 4.1 percent in 2017/18.
This, it says, is the result of increasing operating costs, inflexible lease structures and changing shopping habits. Yet, it concludes that there is still demand for the High Street physical retail experience “presenting opportunities for forward-thinking incumbents, entrepreneurs and investors. Those that collaborate with landlords and local authorities will be the big winners going into the next business cycle”.
But with a December 25th Quarter Day deadline for the payment of quarterly rents, cash flow is likely to be tight for many retailers who won’t get much support from landlords.
Indeed, headwinds are building up for retail landlords in the retail sector such as Intu, the shopping centre owner, which has warned that it will have to raise more money from shareholders. It has said that its rental income has been battered by a wave of controversial retailer restructures, by such retailers as Monsoon and Arcadia, using CVAs (Company Voluntary Arrangements) to negotiate rent reductions.
In addition to rent, rates are also an ongoing problem for retailers. On October 30th the Treasury Committee, a cross-party group of MPs, called for an urgent review of the whole business rates system, saying that it was broken, having outpaced inflation for many years and grown as a share of business taxes, placing an unfair burden on bricks and mortar shops. Not only that, but, it also criticised a backlog of 16,000 appeals against business rate decisions and called for the government’s valuation office to be properly staffed.
This was only the latest in a seemingly endless series of calls for reform, that had come from such bodies as the FSB (Federation of Small Businesses), the British Retail Consortium and others throughout the year, with FSB chairman Mike Cherry warning of a very bleak winter ahead.
With consumer confidence currently at a six-year low according to research by YouGov and the Centre for Economics and Business Research Mr Cherry’s prediction isn’t a surprise.
With an estimated 85,000 jobs having already gone from the retail sector over the last year, and approaching 3,000 more coming after the latest retail closures how likely is it that consumers will rush out and spend during the festive season?
The likelihood of any Government action has, of course, receded into the distance given that politicians are now not sitting, but out on the campaign trail ahead of a General Election on December 12th.
Whether a new government can shift its focus away from the ongoing and ever more tedious Brexit saga and onto more pressing domestic concerns remains a very big question but the party manifestos focus on sectors other than the retail sector which doesn’t bode well for them in the short term.