Is UK Retail Sector Under Tremendous Pressure?

  • Jan 10, 2019 GMT
  • Team Kalkine
Is UK Retail Sector Under Tremendous Pressure?

In the past few years, there has been a shift in the retail sector landscape at the global level. For instance, Europe has experienced a shift in preferences from high-street to online shopping. This has caused the big store retailers to resort to price-cutting as clothing brands like Asos, Boohoo and Zalando have relatively taken over the market share and posing fierce competition.

Besides the overall trend, the UK retail sector has also been going through a slowdown since Q4 2018 with rising business taxes. The situation has transpired into an evident loss of jobs in the UK. From department stores to e-commerce players, all have witnessed massive decline in their sales volumes with expectations of a possible further deterioration in 2019. The resulting discounting strategies being adopted by companies can be attributed to a rather falling consumer confidence inflicted upon by the Brexit turbulence as well as fall in household income leading to cautious spending. In fact, it pushed the profits down than supporting the sales. The growing inflation and falling sterling value can also be considered to be other major contributors to the sickening retail sector. Even the most awaited Black Friday did not give a boost to the economy, as seen during late last year.

To retailers’ disappointment, the online sales did not live up to their predictions around last Christmas and thereafter. Thus, the loss of business at the department stores could be balanced out. The British Retail Consortium (BRC) that published for a flat scenario for December 2018 in comparison to close to a 1.5% rise in December 2017, considers it to be the worst December since 2008.

Furthermore, the presence of short-sellers, who sell borrowed shares and hope to buy back the shares at a lower price later to profit from the difference, has perhaps added to the poor performance of retail businesses. Specifically, the blue-chip retailer Marks & Spencer has been the victim of the same.

The giant retailers such as Debenhams Plc (DEB) and Marks & Spencer Group Plc (MKS), are specifically facing the wrath of the slump. Meanwhile, MKS has reported for persistent decline in its food and clothing sales during the quarter ending 2018. Next (NXT.L) is the only retail chain to have sailed through 2018 with a decent sales performance through its diverse business lines and online presence. It is expectant of a fairly upward yet slow growth in 2019 as well.

After the House of Frazer collapse, Debenhams has announced a possible shut down of one third of its stores. On the other hand and as a turnaround contingency plan, MKS has announced to enforce a better sustainable and profitable plan to ensure promising growth by closing off 100 stores by 2022 as it shifts its business online.

While it was being believed that the online shopping is the future, the reality is not supportive due to spill-over effects of economic slowdown and political turmoil. The evidence lies in the falling profits and crashing share prices of the industry players.

Looking at the performance of the above-listed retailers, we notice that Debenhams has fallen significantly by about 13.1% on 10 January 2019, 1:42 pm GMT while MKS edged slightly up. NXT was also on a lower side during mid-day trading.

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