Emperor’s new clothes moment happening in retail
There seems to be an ‘Emperor’s new clothes’ moment going on in retail at the moment.
It came to me after seeing the November Office for National Statistics (ONS) retail sales figures where virtually all the coverage had been positive. These glowing headlines were driven by the ONS itself and city economists but, unless I missed something, I see red flags being raised all over the place.
If these are such positive numbers, how come more than two thirds of the High Street was on sale a week, if not two weeks, before Christmas? The vast majority seems to have misinterpreted the figures and followed the volume and not the value. This mistake is then magnified when either inflation or deflation are factored in – like right now.
The November value numbers for the trade as a whole were +2% but that is the weakest November year-on-year growth for 10 years. And this modest growth was at the expense of the industry through price deflation which we have seen over recent months of 2.4%.
Ok, volumes went up by 4.3% but it still doesn’t balance the books. The 2% growth will have also been skewed by Black Friday sales online and doesn’t take into account the high returns that inevitably follow. If you listen to quieter conversations around the industry sidelines there is more realistic talk of underlying growth for November that will net out at below 1.5% year-on-year but no one seems to be shouting about it.
I also still see other analysts talking up the demand for retail space, but if that is the case why are we still seeing vast tracts of high street space still not occupied?
After 12 months of relentless discounting across every sector of the trade, retail is still fragile and progressively losing share of consumer spending. If retailers do not have a clear online strategy with robust logistics to support ALL areas of their business then their future will be as limited as Donald’s Trump’s foreign policy.
Of course dropping prices does increase volumes, but only to a limited degree and the profit margins suffer. The limited effect has hovered around 4% and has been like this for some months. Deflation is still occurring and is virtually all on current season’s stock, thus diluting margins further.
We may see slightly better trade figures over the last few shopping days to Christmas when online retailers run out of postal dates but this is an extremely small window where the high street has an advantage over online competitors.
I don’t want to be The Grinch that stole Christmas but I do believe next year will be painful and some retailers will be trading through their last Christmas. This is not ‘Bah Humbug’, it’s just reality unfortunately.
This week saw business rates rise again, with the multiplier increasing to 50.4p in the pound – a hit many companies could do without.
It is looking like the Scottish Government is to follow in English footsteps by making business rate revaluations more frequent.
The appeals centered on two business rates avoidance schemes where the properties were vacant and liable for unoccupied rates.