A Christmas bonus for the UK’s struggling retailers- Andrea Felsted

A Christmas bonus for the UK’s struggling retailers: Andrea Felsted

Christmas 2023 turned out to be more ho-ho than ho-hum. For some retailers, anyway. Next Plc said its full-price sales in November and December were better than expected, and raised its forecast of pretax profit in the year to the end of January for the fifth time since June.

Britain’s big listed supermarkets, Tesco Plc and J Sainsbury Plc, are also likely to have had a good Christmas, according to data provider Kantar. But investors shouldn’t get too carried away. Next is one of Britain’s best retailers, with a modern store fleet and a muscular online business, while the supermarkets have benefited from food-price inflation.

Next said full price sales rose 5.7% in the nine weeks to Dec. 30, compared with the year earlier, ahead of the 2% it had anticipated. Consequently, Next increased its full-year pretax profit guidance by £20 million ($25 million) to £905 million.

Chief Executive Officer Simon Wolfson said its digital arm performed strongly, due to improvements to its service and comparisons with a year ago, when shoppers were nervous about ordering online because of the postal strike.

Marks and Spencer Group Plc should benefit from some of the factors that helped Next, as well as improvements to its clothing ranges. M&S also has a sizable food business, and Brits spent a record £13.7 billion on groceries in the four weeks to Dec. 24 according to Kantar.

But not all store chains are in this fortunate position.

Online retailers Asos Plc and Boohoo Group Plc should also have benefited from comparisons to a year ago when sales were impacted by the postal strike. But cautious consumers and warm weather, as noted by JD Sports, are worth watching for chains exposed to more discretionary spending, such as high fashion.

And big, expensive items look vulnerable, as noted by Topps Tiles, as the housing market slowed, and consumers held off from pricy projects such as a new kitchen and bathroom.

Luxury demand may also have been more muted, unhelpful to progress at Burberry Group Plc and Frasers Group Plc’s upmarket Flannels division.

Still, all retailers can take comfort from a consumer environment that Wolfson described as “more benign” than for a number of years.

Household energy bills remain high, and consumers have not had the cushion of government support this year. But the escalation in food prices is easing, one of the reasons that wage growth is outstripping inflation. As long as difficulties accessing the Suez Canal don’t stoke fresh price increases, then the cost of clothing and home furnishings should be stable.

And while the pain of higher borrowing costs is also clearly being felt by those refinancing their mortgages, we are probably at the end of the rate-hiking cycle.

There remain risks. The big concern is unemployment, as job losses have the biggest impact on spending. And Next notes that the Suez situation could result in delays to the arrival of spring summer stock. So far, according to Wolfson, the disruption is “an inconvenience rather than a crisis.” But the longer the problem goes on, the bigger the impact will be.

Its worth remembering that for all the relative optimism, Next is forecasting that its full-price sales will be up just 2.5% in the year to January 2025.

Still, 2023 turned out to be much better for Britain’s retailers than they thought it would be. The danger is that it’s a temporary reprieve. Now they have to navigate potential supply chain snags and a noisy election campaign.

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