Main Street bosses are bracing for a string of casualties this Christmas as households grapple with rising food and utility bills. Industry experts and store managers have told The Mail on Sunday that chains are caught between rapidly rising costs and weaker than hoped demand.
Apparel retailers would be particularly exposed to cutbacks after warmer-than-usual weather meant winter collections piled up in warehouses.
Veteran retail advisor Richard Hyman said: ‘There are undoubtedly many vulnerable retailers.
Cold climate: M&S slashed jacket prices, circled, as temperatures dropped
“I think in the new year there will be a lot of excess stock, a lot of discounts and we’ll see some casualties.”
Many stores have seen an uptick this year after being forced to close during the pandemic. Shoppers have flocked to city centers and retail parks, giving stores a much-needed lift. But the mood is fragile. Hyman said, “People’s spending power is shrinking month by month. There must be something to give. Traditionally, a lot of money is spent on purchases that people do not necessarily need, especially clothing.
‘Christmas is off, that’s for sure. But I think it’s going to be a stripped down Christmas. We’re going to see a squeeze.’
Last week, the heavily discounted Black Friday events turned out to be a damp squib with shoppers dropping 22 percent in the first hours of the day compared to pre-pandemic levels. One retail executive said, “You can’t double household energy bills and add 15 percent or 20 percent to the food bill and expect consumers to continue spending as if nothing had happened. The next few weeks will be very brutal.”
He added that the rising costs of labor – the largest retail expense – and of energy, raw materials and transportation were a “perfect storm” of inflation-driven cost increases. He said the speed of the increases in recent months had been a “nightmare.”
According to official forecasts, disposable income will fall by 4.3 percent in the year to April 2023.
Bosses are also concerned that train strikes in the run-up to Christmas could ruin days out, especially trips to major city centers such as London.
The autumn already heralded the bankruptcy of clothing chain Joules and online furniture retailer Made.com. City analysts believe that even the high street stalwarts are feeling the bottlenecks.
Tony Shiret, at broker Panmure, said he has lowered his buy rating for the clothing sector, including Next.
He said a 20 per cent sale on all coats and boots at Marks & Spencer – just as the cooler weather set in – was evidence that demand for winter clothing was subdued. The sale was launched at an “inconvenient time” for the retailer, just as more seasonal weather has been rolling in over the past two weeks.
He said it suggests that unsold inventory in the company has “become critical” and the chain has had to sell large quantities at a lower price.
The Met Office said the average temperature in October was almost 2°C above the long-term average. The highest recorded during the month was 22.9°C in Kew Gardens on October 29. The mild weather continued into November. In a report sent to investors about fashion retailers, Shiret said; Our information is that [clothing] distribution centers are full.’ Online retailers Boohoo and Asos have already shown signs of declining demand.
A growing number of stores are having issues with their trade credit insurance – coverage for their suppliers. Withdrawal of coverage may be an indication that finances are under strain.
Earlier this month it was reported that both Boohoo and Asos had their trade assurance cuts by Allianz Trade.
Allianz has also dropped coverage for suppliers of Wilko, the 400-store hardware company formerly known as Wilkinsons.
It emerged last week that Wilko was in talks for a £30m emergency loan and has engaged advisers from Teneo to help the company get its finances in order.
Fashion retailer Superdry said last month it must refinance a bank loan by January. Reports suggest that Bantry Bay, backed by Elliott Advisors, could close the gap.
A retail director added that value chains operating in city centers, including New Look and Matalan, are more vulnerable to pressure than others.
He said he expected Primark to be the exception.
“If you ask me which one I think will do well through all this, I’d say Primark, Aldi, Lidl and probably Next,” he said.
Other supermarkets, including Tesco, are expected to be better protected against cuts, despite growing evidence that customers are being more cautious – for example, replacing branded goods with retailers’ own-brand ranges.
Christmas celebrations have been disrupted by two years of Covid restrictions.
Hyman said, “I think people still want to entertain this Christmas. They are certainly not going to cancel that, even if they may spend a bit more.’
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.