Let’s be clear about what is happening out there right now. We are in a retail recession. I don’t have a technical definition as economists have for the wider economy. But what is clear is the combination of excess supply and a consumer indebtedness, pressured household budgets plus the gravest political and economic uncertainty in modern times adds up to a disastrous end to the most challenging trading year UK retail has ever seen.
I’m not using the word disastrous lightly. I have chosen this word because of where I think it leaves us going into 2019. UK consumers don’t have anywhere near the money to rescue the “Golden Quarter” by going on a spending spree in the last few days of this year. The die is cast – to a degree it was cast halfway through November when Black Friday proved a damp squib and retail failed to get spending going in the weeks that followed. So where does this leave us?
Pre-Christmas discounting has become the norm in recent years but not on the scale we are now witnessing. Discounting has three component parts: the number of retailers on sale, the discounts being offered, and the proportion of stock involved. Across the industry, each of these three is higher than ever before. This is all symptomatic of an industry gripped by weakness, and panicking.
Most retailers will enter Q1 2019 with less cash than they need or want. Traditionally, some fat is required to help what are high fixed cost businesses to trade through the weakest quarter of the year. The majority will need to negotiate increased support from their banks and there will be some very difficult conversations. The massive question is just how far our financial institutions are prepared to further expose themselves? And how good are their tools to make these judgements?
Looking ahead, one thing is 100% guaranteed. 2019 is certain to be materially tougher. The industry entered 2018 in much stronger financial shape and despite that, look at the distress we have seen. Materially greater weakness will bring more casualties, starting early in the New Year. It’s going to be a very rough ride.
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