High street bosses are bracing for a series of casualties this Christmas as households grapple with rising food and energy bills. Industry experts and store executives told the Mail on Sunday that chains were caught between rapidly rising costs and weaker-than-expected demand.
Clothing retailers would be particularly exposed to cuts after warmer than usual weather, meaning winter ranges have piled up in warehouses.
Veteran retail consultant Richard Hyman said: “There are many vulnerable retailers – no doubt.
Cold climate: M&S slashed coat prices, circled, as temperatures drop
“I think there’s going to be a lot of excess inventory coming into the new year, a lot of discounts and we’ll see some casualties.”
Many stores have seen a rebound this year after being forced to close during the pandemic. Shoppers flocked to city centers and retail parks, giving stores a much-needed lift. But the atmosphere is fragile. Hyman said: “People’s ability to spend is shrinking every month. Something has to give. Traditionally, a lot of money is spent on things people don’t necessarily need, especially clothes.
“Christmas won’t be canceled, that’s absolutely certain. But I think it will be an edited Christmas. We’re going to see pressure.
Last week’s heavily discounted Black Friday events proved to be a wet squib with the number of shoppers in the early hours of the day down 22% from pre-pandemic levels. A retail executive said: ‘You can’t double household energy bills and add 15% or 20% to food bills and expect consumers to continue spending business as usual. was.” The next few weeks are going to be very unforgiving.
He added that the rising cost of labor – the highest cost in retail – as well as energy, raw materials and transport was a “perfect storm” of induced cost increases. by inflation. He said the speed of the increases over the past few months had been a “nightmare”.
According to official forecasts, disposable income is expected to fall by 4.3% by April 2023.
Bosses also fear rail strikes ahead of Christmas could derail days, especially travel to major urban centers like London.
The fall has already marked the collapse of clothing chain Joules and online furniture retailer Made.com. City analysts believe even the main street pillars are feeling the pinch.
Tony Shiret of broker Panmure said he had cut his buy rating on the apparel sector, including Next.
He said a 20% sale on all coats and boots at Marks & Spencer – just as cooler weather arrived – was proof that demand for winter clothing had been lackluster. The sale was launched at an “inopportune time” for the retailer, just as the more seasonal weather has arrived over the past fortnight.
He said it suggested levels of unsold stock in the business “have become critical” and the chain needs to sell large quantities at a reduced price.
The Met Office said average temperatures in October were nearly 2C above the long-term average. The highest recorded during the month was 22.9C at Kew Gardens on October 29. The mild weather continued into November. In a report sent to investors on fashion retailers, Shiret said; “Our information is that [clothing] the distribution centers are full. Online retailers Boohoo and Asos have already shown signs of weakening demand.
A growing number of stores are having problems with their trade credit insurance – the cover given to their suppliers. Removing coverage can be an indication that finances are under pressure.
Earlier this month it was reported that Boohoo and Asos had had their trade insurance reduced by Allianz Trade.
Allianz has also reduced its coverage for suppliers to Wilko – the 400-store hardware business formerly known as Wilkinsons.
Last week it emerged that Wilko was in talks over an emergency £30m loan and has brought in advisers from Teneo to help him mend his finances.
Fashion chain Superdry said last month it had to refinance a bank loan by January. Reports suggest Bantry Bay, backed by Elliott Advisors, could close the gap.
A retail manager added that value chains operating in city centers, including New Look and Matalan, were more vulnerable to pressure than others.
He said he expected Primark to be the exception.
“If you ask me which ones I think will do well, I would say Primark, Aldi, Lidl and probably Next,” he said.
Other supermarkets, including Tesco, should be better protected against cuts, despite mounting evidence that shoppers are being more cautious – replacing branded goods with retailers’ own branded ranges, for example.
Christmas celebrations have been disrupted by two years of Covid restrictions.
Hyman said, “I think people still want to entertain this Christmas. They are definitely not going to undo this even if they can spend smarter.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any business relationship to affect our editorial independence.