A profit warning in the week leading up to Christmas is never a good look. This year’s shock has been provided by Superdry Plc. With just a few shopping days to go until the holiday, investors should be braced for more bad news from other retailers.
Superdry looks particularly vulnerable to the current difficult conditions in Britain’s malls and town centers. It’s struggled to revive its brand after its logo-emblazoned T-shirts and hoodies fell out of favor with fashionistas a decade ago. Where it is still strong is in coats and jackets, and in this line of business, it was hurt by warm weather earlier in the crucial autumn-winter season. Shares in the retailer fell as much as 33% on Tuesday, before recovering slightly.
While Superdry may be a special case, its warning should inject a note of caution into Christmas trading expectations. Updates kick off in earnest in the first week of January with Next Plc. But further disappointments in the meantime can’t be ruled out. It’s notable that several other retailers, including Kingfisher Plc, owner of home-improvement chain B&Q, discount variety store TheWorks.co.uk, and Halfords Group Plc have also reduced expectations over the last six weeks. Halfords blamed its profit warning on Brits buying fewer new bicycles this Christmas
Despite the UK consumer defying gravity for most of 2023, the run-up to this holiday has been a tricky one for retailers to navigate. While wage growth is now ahead of inflation, which should boost spending, the cost-of-living crisis hasn’t gone away. Heating bills remain high, and consumers haven’t benefited from government support as they did last year. And while we are probably close to the peak of the rate-hiking cycle, the increase in borrowing costs may finally be catching up with some households. November non-food sales were weak, and PwC has predicted that Christmas spending will fall 13% to £20 billion ($25.4 billion) compared with last year.
That said, there will be winners. Spending on hospitality has bounced back in December after a slow October and November. Although 2022 was the first festive period not to be impacted by Covid-19 restrictions, the run-up to last year’s holiday was marred by snow and strikes. This year, office parties — even more crucial when workers are in remote locations — and gatherings of family and friends are firmly back on the agenda.
Even against this backdrop, though, some Brits may be cutting back on dining out, and this should bolster sales of food and drink consumed at home. Indeed, the grocers, led by Tesco Plc and J Sainsbury Plc, should be winners. Not only will still-high food-price inflation boost sales through the cash registers, but their large, convenient one-stop-shop stores means they may pick up sales of clothing and toys too. Data provider Kantar estimates that UK grocery sales will reach a record £13 billion in December.
Strong performers such as Next, Marks & Spencer Group Plc and Associated British Foods Plc’s Primark are also likely to continue on that trajectory. They will benefit from reduced competition, as retailers such as Debenhams and Philip Green’s Arcadia have disappeared from the high street although they live on in various forms online. Wilko’s share of sales of items such as Christmas decorations and seasonal home furnishings has also been up for grabs, potentially benefiting Primark and discounter B&M European Value Retail SA.
But elsewhere life looks tougher. Stores are full of sequinned party wear. Although hospitality is holding up, if Christmas celebrations don’t turn out to be quite as strong as expected, these sparkly jackets and trousers will soon be on the sale rails. Online retail remains challenging, too, as consumers have rediscovered their love of visiting stores.
With Christmas Day falling on a Monday, there is still almost a full week — and certainly a whole weekend — left to shop. If retailers can hold off from slashing prices to stimulate sales, then there’s still the chance of a decent holiday. But Superdry’s warning is a reminder to investors that the season could yet turn out to be a turkey.
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