Retailers are suffering as the UK tightens its purse strings
(Picture: PA Archive)It’s been a rocky period for some sections of the retail industry as many companies find themselves on the sharp end of dimming consumer confidence.
Yesterday, Eve Sleep became the latest casualty of the cost-of-living crisis after it was forced to call in administrators having been battered by a general downturn in sales of non-essential items.
Online furniture retailer Made.com has also been stung by the tightening pursestrings of the UK population, and said it has entered talks with a number of companies with the aim of securing a rescue deal by the end of the month.
The common factor in the current retail troubles is the brands involved largely sell ‘big ticket’ items - fashion, furniture, cars and so on - which the average consumer simply doesn’t have the financial security to buy at the moment.
“Consumer confidence is at rock bottom,” explains Jonathan Pritchard, research analyst at Peel Hunt.
“One of the things that makes confidence low is uncertainty - you often see it happening before a general election because people don’t like to not know what’s going on.
“At the moment, it’s very difficult for the man on the street to have any genuine visibility on his disposable income on a three-to-six month view.”
This is affecting spending, he says, with even relatively modest cut-backs hitting retailers’ bottom lines.
“People aren’t taking action just yet, but as the looming increases in utility bills become reality then you might rethink your Christmas plans.
“Perhaps you will buy the kids five toys this year, not six. The kids will barely notice but that’s a major hit to a retailer’s golden quarter,” he points out.
Across the board, figures from Ipsos showed that footfall in non-food shops across the UK last week is still 11.6% below 2019 levels, suggesting that people just aren’t hitting the shops like they used to.
But they don’t seem to be clicking the mouse quite as much as they once were either.
All eyes will be on online fashion retailer Asos this week as it announces its latest financial results, having amassed a huge debt pile and been hampered by rising costs in recent months.
Its shares have fallen 80% in the last year, an unprecedented reversal of fortunes for a business which thrived during the pandemic lockdowns.
Victoria Scholar, head of investment at Interactive Investor, blames Asos’s woes on “the pandemic online shopping boom fading, painful cost inflation, squeezed UK consumers and a backdrop of volatile financial markets”.
She points out that the company has also been caught in wider market negativity linked to its rival Boohoo, which cut its outlook last month.
“It is a very challenging environment for UK retail at the moment,” says Jason Hollands, managing director of Bestinvest.
“We’re facing a recession, and any wage inflation is being outstripped by inflation.
“There’s a higher tax burden on businesses now the cut to corporation tax has been scrapped, and personal allowances are frozen so even if people are getting wage rises then it just means more people will fall into the higher tax bands. That’s going to squeeze consumers next year.”
People will still buy essentials such as toothpaste and bleach, he says, but pricing pressure will affect margins.
He thinks fashion retailers are one of the most vulnerable parts of the market over the next year as people shy away from buying new clothes.
“Anything that is a premium good and is non-essential is going to have a very vulnerable period up ahead,” he predicts.
