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‘Expect High Street Casualties’ in UK Retail

U.K. retail faces headwinds in 2023.

According to U.K. footfall data firm Springboard, post-Christmas results showed that footfall across U.K. retail destinations in the final week of December fell 27.7 percent from the prior week leading up to Christmas Day. Footfall was up 7.2 percent for the week from year-ago levels. Overall, footfall for December rose by just 5.8 percent from November. Based on January declines from December foot traffic in past years, Springboard estimates that this month will see a 20 percent in footfall.

The retail data gets worse. U.K. total retail sales rose 3.1 percent in 2022 from 2021 levels. Food growth was up 3.0 percent, while non-food growth rose 3.2 percent. Total retail sales in December increased by 6.9 percent, on top of a 2.1 percent gain in December 2021, but that’s not the full story. That’s because sales figures aren’t adjusted for inflation. The inflation rate hit 10.7 percent in November. December’s sales gain was lower than the rate of inflation. After factoring in inflation, the volume of goods bought was likely flat, while the increase in retail sales was due to rising prices. People bought less because they had to pay more for what they did buy.

Paul Martin, head of U.K. retail at KPMG, said last month’s sales growth masked the fact that volume was “significantly down” versus December 2021. “With Christmas behind us, retailers are facing a challenging few months as consumers manage rising interest rates and energy prices by reducing their non-essential spending, and industrial action across a number of sectors could also impact sales. The strong demand across certain categories that has protected some retailers will undoubtedly fall away so we can expect high street casualties as we head into the Spring,” he said. 

British Retail Consortium CEO Helen Dickinson said December marked the ninth consecutive month of falling volumes. “Retail faces further headwinds in 2023. Cost pressures show little immediate signs of waning, and consumer spending will be further constrained by increasing living costs. Retailers are juggling big cost increases while trying to keep prices as low as possible for their customers,” she said. “And, from April, they will be hit with an additional 7.5 billion pound ($9.12 billion) energy bill should the Government’s Energy Support Scheme expire.”

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Despite the choppy waters, companies across the pond are moving ahead with their 2023 strategic plans.

Sellier Knightsbridge acquires Worn

Three-year-old luxury reseller Sellier Knightsbridge said it acquired rival Worn as it looks to dominate the British market for pre-owned premium goods.

In addition to hawking pre-owned Hermès bags, Sellier maintains an assortment of luxury ready-to-wear, footwear and accessories. It has branched out from its exclusively digital roots to now run a consignment shop in London’s Knightsbridge neighborhood and a second one in Monaco. Worn’s Belgravia resale shop is expected to continue operating in London.

Sellier is hoping to take share in a global market teeming with names from Vestiaire Collective, 1stDibs, The RealReal and Rewind Vintage, to Resellfridges, Lampoo, Designer Exchange and The Luxury Closet. A number of rental firms, such as By Rotation and Hurr, have gone on to launch their own resale arms. Gen Z and millennials are among resale’s biggest fans, often buying and selling in the secondhand market and using their proceeds to purchase new-to-them used goods.

Luxury e-tailer Farfetch in 2019 entered the resale game with a designer handbag trade-in program. A year later, Rebag, which started as the destination for buying and selling pre-owned designer handbags, expanded by including luxury accessories on its e-commerce site. And resale site StockX in October branched out beyond its sneakerhead base to include women’s luxury footwear and could move into men’s footwear from in-demand names like Hermès, Gucci and Prada. Luxury handbags and accessories could also be on its expansion agenda.

Frasers Group lowers Hugo Boss stake

Frasers in October had raised its direct ownership interest in shares of the German fashion brand to 4.3 percent. The company has since lowered its direct ownership stake to 3.9 percent. Its total interest is now capped at 580 million pounds ($691 million), including indirect put options, down from 960 million pounds ($945 million). 

There had been speculation that Frasers might interested in taking over Hugo Boss because it had steadily raised its stake since the original June 2020 investment.

CEO Michael Murray has been running his father-in-law Mike Ashley’s retail empire since May last year. Ashley founded Sports Direct, subsequently changing the company name to Frasers Group after it merged with House of Fraser. The retail giant recently acquired distressed nameplates Sneakerboy and Missguided, whose new collection will launch in select House of Fraser stores in April, Drapers reported Tuesday. It took a 95 percent stake in Australian close-out platform MySale.com. In November, Frasers acquired Gieves & Hawkes, the Saville row tailor that services the British royal court.

JD Sports, Asos sales updated

JD Sports Fashion Plc said Wednesday that sales “strengthened” in the second half, with total revenue growth for the 22 weeks to Dec. 31, 2022 up more than 10 percent versus growth of 5 percent for the first half. The company’s current fiscal year will end on Jan. 28, 2023. Total revenue growth for the six week holiday period to Dec. 31 was up more than 20 percent. North American sales were up over 20 percent, while JD said its businesses in the U.K., Republic of Ireland, Europe and Asia have “maintained their first half momentum, both in stores and online.” Group profit is now expected towards the top end of expectations, between 933 million pounds ($1.13 billion) to 985 million pounds ($1.20 billion).

JD also guided profit before tax and exceptional items for the upcoming fiscal year ending Feb. 3, 2024 to be “just over 1 billion pounds ($1.21 billion).” In addition, the company said it believes its “most significant opportunities lie in the continued international multi-channel development of the Group’s sport fashion businesses,” which will see an acceleration of its global investments through 2023.

At Asos plc, the e-tailer said on Thursday that total group revenue fell 4.1 percent to 1.34 billion pounds $1.62 billion) for the four months ended Dec. 31, 2022, from 1.39 billion pounds ($1.69 billion) in the same-year ago period. By geography, total sales in the U.K. down 8.4 percent, but up 6.9 percent and 14.8 percent in the European Union and the U.S., respectively. Sales in other countries under “rest of the world” fell 29.9 percent. The calculation of revenue includes the removal of Russia from the year-ago period for a like-for-like comparison following the decision to suspend trade in Russia on March 2, 2022.

Asos said the adjusted gross margin in the period was “broadly flat,” although there was “encouraging progress through the period” when compared with the prior year period. Asos also said significant improvement in the adjusted gross margin is expected in the second half of Fiscal Year 2023. The e-tailer also said that it has made “significant progress” in its Driving Change agenda, its strategic initiative to increase profitability measures to offset inflationary headwinds and normalize return rates. This initiative included the winding down of three ancillary storage facilities, rationalizing office space and the removal of 35 unprofitable brands from the Asos platform.

The company also said it was on track to reduce Fiscal Year 2022 year-end inventory levels by 5 percent by the end of the first half of Fiscal Year 2023. But it still expects a first half loss in Fiscal Year 2023 due to certain headwinds and because benefits from its Driving Change agenda won’t kick in until the second half.

“We are undertaking necessary strategic and operational changes, with our focus shifting from prioritising top-line growth to building a more relevant and competitive fashion business with a disciplined approach to capital allocation and ROI (return on investment),” José Antonio Ramos Calamonte, CEO, said. “We have made good early progress against a number of measures to simplify the business, including re-positioning our inventory profile, reviewing our operational model in our top markets and reducing our cost base. While there is more to do, I am pleased by the progress made in this period and am confident in the direction we are going.”

Boohoo Group is expected to report lower margins when it publishes a business update on Jan. 19 for the four months ended Dec. 31.

MS&Co

The retailer began layoffs at its corporate headquarters in Scotland at the end of December with the marketing and information technology departments said to suffer the biggest cuts.

Up to 1,900 jobs were at risk when the 180-store network retailer collapsed on Dec. 9.

Founded in 1834, the company began operations as a pawnbroker and didn’t begin selling apparel until the 1950’s. M&Co went bankrupt in August 2020. The McGeoch family, which owns M&CO, bought the retailer back through a pre-packaged deal negotiated ahead of time with creditor consent. Teneo Financial Advisory Ltd., the administrator, is said to be looking for a buyer. It still hasn’t been determined whether the seller of men’s, women’s and kids’ fashion will need to close stores, or if more job cuts are in the future.