The Retail Note

  • Wesfarmers has completed the first conversion of a Homebase store to Bunnings in St Albans. It plans to transform the entire 265-unit Homebase estate over the next three to five years. As part of a wider charm offensive, the business has also cut the use of zero hours contracts and introduced the national living wage to all staff members over the age of 18.
  • Disappointing Q3 figures from New Look. In the year to date, covering the 39 weeks to 24 December, total sales fell 2.9%. Group like-for-likes were down 4.6% in Q3 and fell 7.0% over the 39 week period. Adjusted EBITDA fell from £83.3m in Q3 2015 to £66.9m during the same period in 2016.
  • Reports in the Sunday Times suggest that Topshop suffered an 11% fall in like-for-like sales over the seven-week Christmas period, between Black Friday and New Year. Total sales at parent company Arcadia, which includes Burtons Menswear, Dorothy Perkins, Evans and Wallis, fell by around 6.5%.

 

Stephen Springham, Head of Retail Research:

Blip or shape of things to come? Today’s figures from the BRC on January’s retail sales are certainly not strong – UK retail sales edged up 0.1% overall and declined by 0.6% on a like-for-like basis. And the naysayers in the media had their negative straw to clutch to in that rolling 3 month growth was the lowest since 2009.

Three key caveats on these figures. The comps last year (+3.3% overall, +2.6% like-for-like) were very strong, so simple maths meant that headline growth was going to be hard to come by this time around. Secondly, the BRC figures continue to diverge massively from the ‘official’ ONS numbers, which have been significantly higher in recent months (almost inexplicably so). We won’t get the official figures for another couple of weeks or so. Thirdly, January is a notoriously fickle month from which to derive any sort of meaningful read.

On the last of these three points, January is always the least busy month in the retailing calendar, typically accounting for less than 7% of our annual retail spend. It therefore carries less weight than every other month. Equally, it is often an inverse reflection of how Christmas trading was, and this has certainly proved the case over the last couple of years. Christmas 2015 was very poor, but the January that followed it was strong. This time around we had the opposite – a relatively strong Christmas followed by a subdued January. Given the choice, the latter is infinitely preferable to the former.

Indeed, I may even go as far to say that a subdued January can actually be interpreted as a positive factor (and I’m not renowned for my glass half-full views). If the post-Christmas sales period is lacklustre, it not only signifies that consumer demand held up in the more important pre-Christmas period, but also that the retailers were not overstocked going into the festive season. Inflated sales figures for January do set certain alarm bells ringing in that they may have only been achieved through last-ditch discounts and with material impact on margins. Obviously, this is a bit black and white considering the modern-day tendency for retailers to run promotions and possibly discount before Christmas, but it does carry at least some weight.

February is another low profile month for retailing (also less than 7% of annual spend), while the figures for March and April will be very difficult to interpret accurately on account of Easter timing distortions. Frustratingly, we won’t have a good read on the underlying health of UK retail for a number of months yet. Those seeking clarity and certainty won’t find it in this month’s figures from the BRC.

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