The Retail Note - 25 January 2017
The Retail Note
4 minutes to read
- WH Smith has raised full-year profit expectations on the back of a strong Christmas. In the 21 weeks to 21 January, group like-for-likes rose 1%, while total sales increased 2%. As ever, the performance of the two core divisions contrasted, with Travel sales up 5% like-for-like (+10% overall), but High Street sales down 3% like-for-like (-4% overall).
- Dixons Carphone has reported its fifth consecutive year of Christmas growth, with group sales up 8% for the 10 weeks to 7 January 2016. On a like-for-like basis, UK sales rose 6% compared to 5% in southern Europe and a 1% decline in the Nordics. Reported sales in the Nordics were strong at 15%. CEO Seb James confirmed that margins had been maintained and predicted “a meaningful uplift in year-on-year profitability this year.”
- Sofa.com also reported a strong Christmas, with sales up 28% in the 12 weeks to 9 January 2017. The pure-play turned multi-channel operator now has eight physical stores and reported that new shoppers accounted for 73% of orders of beds, chairs and sofas at its recently opened showrooms in Islington and Bankside. Another new store is set to open in Guildford. Online, the business currently operates in 12 countries.
Stephen Springham, Head of Retail Research:
After months of frenzied speculation, the official retail sales for Christmas were finally released last Friday, and got scant coverage in the media. The small matter of Mr Trump’s inauguration the same day may have admittedly deflected media attention elsewhere, but no doubt there was also an element of ‘old news’ syndrome as well. After all, the BRC had released their numbers a couple of weeks before and most of the major retailers had also reported. Or maybe it would just pain them too much to report something positive on the retail sector?
The ONS figures were undeniably strong. Retail sales volumes were up 4.9% year-on-year in December and retail sales values were up 5.1%. Better even than our own bullish predictions (volumes +4% to +5%, values +2.5% to +3.5%). And immeasurably better than retail industry commentators’ doom and gloom predictions of growth of just 1.5%, which were afforded extensive coverage in the pre-Christmas press.
Two factors to flag on the December figures. Without wishing to pour cold water on their robustness, the figures were always going to look strong given the weak comparables the previous year (December 2015 saw volumes grow by just 2.1% and values decline by -0.7%), so basic maths was always going to the inflate the numbers. Secondly, and perhaps more significantly, December was the first month where value growth outstripped volume growth since June 2014. In layman’s terms, this heralds the first signs of inflation, albeit modest at this stage.
The December figures obviously also contain both the Q4 and full year out-turn numbers. For Q4, retail sales volumes and values were up 6.2% and 5.6% respectively. Not bad for a sector that many predicted would fall off a cliff post-Brexit. For 2016 as a whole, volumes were up by 4.7% and values by 3.1%.
So much for the past, what does this year hold? We have already flagged that this year will be far more challenging for UK retailers in the face of rising sourcing, staffing and business rate costs. There is also a school of thought that the Q4 figures were something of a ‘last hurrah’ for UK consumers, who pulled forward purchases in the expectation of substantial price hikes this year. This may be true of some ‘big ticket’ retail sub-sectors, notably electricals, but is unlikely to be reflective of the whole retail industry.
Some frankly ludicrous economic forecasts are also doing the rounds. Some are predicting that retail sales values will decline by 3% this year. That would represent a six percentage point reverse on 2016 and presumably factoring in inflation of 3-4%, that would mean a collapse in retail sales volumes of 6-7%. Really? Food, the largest component of retail sales (ca. 45-50%), is returning to sustainable and accelerating growth. Fashion, the second largest component of retail sales (ca. 15-20%), is trading against very weak comparables last year in what was a weather-induced annus horribilis and will, in all likelihood, report growth. The maths of such a precipitous decline simply do not stack up.
2017 will be certainly challenging for UK retail, but treat some of the dire predictions with more than a pinch of salt.