BRC – look beyond the numbers

9th August 2016

The latest BRC numbers are being greeted with great relief. See – it’s not as bad as was made out and post-Brexit Britain is thriving, or so it seems. There will be some serious flip-flopping of views over the coming months because these numbers really tell us very little. Indeed, no numbers will be very reliable for some time. We are in a state of flux.

The first half of 2016 has seen retail sales growth by value averaging 1.6% per month. This in itself is some way short of the 3% total cost growth run rate (that’s operating plus product costs)  across the industry. And this is all pre referendum. Forget about stats for a moment and just rely on common sense – there must be some delayed purchasing out there and even though this may be relatively peripheral, retail is a volume-sensitive business where small shifts in unit sales have a massive impact on profitability.

It is true that the BRC figures could have been worse but no one should imagine they represent the likely consumer reaction to a post-Brexit retail economy. And no one should ignore the evidence out there in the shops – 70% of total UK retail (food and non-food) is currently on sale. This cannot reflect a healthy market and the real headwinds are already beginning to hit performance. There is more on the way.

** We advise leadership teams in and around retail – get in touch if you think we can help – admin@richardtalksretail.co.uk

Next, rates and the squeeze

5th August 2016

Next delivered a very respectable set of results given the circumstances. The use of the word “bellwether” to describe the company is totally misplaced. Generally, Next will significantly outperform the market so the idea that it is a good indicator of wider retail performance is totally misplaced.

As usual, Lord Wolfson’s comments on the consumer economy and the retail market are very insightful. However, his business does most things far better than its peers – that’s why it is where it is today, and most of its peers have been left behind. So customer demand is very weak and brittle – and this is before any direct economic impact from Brexit has been felt. He makes it clear that moving product at full price has become far harder. This is a one way ticket – it will get harder still going forward. He mentions currency hedging and Next is in a reasonably good place. However, for the future beyond hedging, most retailers do not enjoy the partially mitigating overseas revenue Next does. Meanwhile, supply continues to grow and demand is too soft to be able to pass much of this cost increase onto customers.

Lord Wolfson has so far seen little impact on post-Brexit demand but this is unlikely to be universal. Retail is all about volumes and small shifts at the edge can have a huge impact on performance. There will be some deferred purchasing, especially given the constant price promotions which tell customers that what they want may we’ll be cheaper next week or next month. Next steadfastly avoids unplanned promotions, and it shows.

I can’t see how yesterday’s interest rate cut will make much difference to the real economy. Unlike the debt crisis, there is no room for the really material drop in interest rates that acted to insulate consumer spend for so long. While the real trading pressure will take a little more time to percolate through, I foresee job losses and casualties on the horizon. Even the very best like Next face unprecedented challenges but they have the leadership team and brand strength to cope. Many don’t.

** We provide advice, analytics and forecasting to leadership teams in and around retailing. Get in touch if you think we can help – admin@richardtalksretail.co.uk