The World Cup – a nil nil for UK retail
The World Cup and the likely (non) impact on UK retail sales, annual figures from New Look and Games Workshop and an interim trading update from Ted Baker.
5 minutes to read
- Predictably nasty annual figures from New Look. Having successfully negotiated a CVA earlier in the year, the business reported an operating loss of £74.3m last year (to 24 March), with sales down 7.3% to £1.35bn. UK like-for-likes declined 11.7%. Tellingly, its own website sales plummeted 19.2%, but third-party e-commerce sales rose 15.5% - product not property the root of its issues?. The adjusted EBITDA loss was £10.7m, which included £34.2m of one-off costs such as stock clearance.
- Much stronger figures from Ted Baker. For the 19 weeks to 9 June, the business reported a 4.2% increase in group sales despite tough trading conditions and unseasonal weather. Total retail sales (including e-commerce) edged up 0.7% while wholesale revenues increased by 14.2%. Both retail and wholesale gross margins were in line with expectation. The company allayed fears of the House of Fraser closures having a major impact on its business by suggesting sales from its HoF concessions weren’t “material”.
- An ‘under the radar’ retailer continuing to perform well. Having been the fastest growing stock on the FTSE 250 in 2017, Games Workshop provided a strong full-year trading update. The 400-store table top fantasy games retailer expects pre-tax profits to be no less than £74m, up nearly 100% year-on-year. Group sales are expected to come in at £219m, with a further £10m expected to come from royalties. It is set to hand £5m to its staff in bonuses, paid equally among each member of staff.
Stephen Springham, Head of Retail Research:
The World Cup is upon us. And with it, the clash of two media myths of epic proportions. Think Brazil v Germany, but bigger.
Media myth number one: the UK retail market is currently on its knees as consumers aren’t spending. Media myth number two: major sporting and ‘national’ events are a bonanza for the UK retail market. Play the two myths off against each other and you get extremely fuzzy logic of a retail market suddenly springing into life on the back a global football tournament taking place on the other side of Europe.
To counteract media myth number one: despite all the current malaise in the UK retail sector, the UK consumer continues to spend. Last year, retail sales grew by 4.5% overall and by 2.1% in real terms. In Q1 2018, the corresponding growth figures were 3.7% and 1.2% respectively. April held up despite Easter timing distortions and indications from the BRC are that May experienced a sharp positive uptick. So, the World Cup is unlikely to ‘kick start’ retail sales, in so far as you can’t kick start something that is already chugging away quite nicely.
Onto media myth number two. Having covered more sporting and ‘national’ events than John Motson and David Dimbleby combined (maybe not, but it feels like it), I have yet to see any empirical evidence to support the notion that ‘national’ or major sporting events bolster UK retail spending in any meaningful way. The best example I can cite is the London Olympics of 2012., which history records as providing a major boost to the UK retail market – a story peddled so much that everybody accepts it as read. But the actual figures tell a very different story – total retail sales growth in August 2012 (+1.6%) was in fact the lowest in the whole of 2012 and like-for-like sales actually went backwards (-0.4%) for the first time that year, a trend that would carry on for two months thereafter. So, much more of a drag than an uplift. But why let the truth stand in the way of a good story?
What of the so-called ‘feelgood factor’? The obvious, if slightly flippant answer is that if past tournaments have been anything to go by, ‘feelgood’ is again likely to be in very short supply this time around. Be that as it may, let’s suspend disbelief and assume that England do get out of the group and progress through the rounds. Obviously, this will have a positive impact on the national mood and this is, I suppose, what people term a ‘feelgood factor’. But even in this dreamland scenario, it seems an amazing leap of faith to assume that this in any way benefits the retail sector. England play well, make miraculous progress, so everyone decides to go out and buy a washing machine? Where’s the logic in that? If there is indeed any ‘feelgood factor’, this is much more likely to be expended in the pub than in a shopping centre.
It’s also worth making the point that whilst the World Cup will capture the imagination of large sections of the UK population, equally large proportions won’t give two hoots. For a start, it’s hard to imagine many of the good folk of Scotland, Wales and Northern Ireland going on a shopping spree if England do progress. Collectively, around a minimum of 10 million UK people are ambivalent – at the very best…
Of course, that does not mean that the retailers themselves aren’t making a big play for the World Cup. In addition to stocking World Cup-themed merchandise, many will embark on a series of football-led promotions. And why wouldn’t they? Clearly, there is consumer demand to tap into and these products will undoubtedly sell. Over and above that, there is also a need for fresh marketing / promotional hooks and the World Cup neatly fills a void in the annual calendar. But the point is that most of this spend is substitutional rather than incremental - it is spend that would have been made anyway, whether the World Cup was happening or not. In terms of impact, probably more Morocco v Iran or Tunisia v Panama, than Germany v Brazil…
In short, ‘beleaguered’ UK retailers are probably praying more for a sustained period of hot weather than they an extended run by the England national team. But a combination of the two would certainly not go amiss.
And, for what it’s worth, my money’s on Germany.