You will be redirected back to your article in seconds
Skip to main content

Inflation Eats Away at British Retail

High inflation is dampening retail sales in the U.K., as evidenced by a slowdown in footfall for three consecutive months.

September foot traffic rose just 6.8 percent year over year, marking a decline from August’s 8.6 percent gain and a 15.6 percent improvement in July, according to data firm Springboard. High street footfall rose 9.5 percent from the year before, less than August’s 13.9 percent gain. While high street retailers are battling inflation, they also have fewer people to sell to with roughly half of all professionals still working from home, noted Diane Wehrle, Springboard’s marketing and insights director.

That’s not the only factor at play. “The energy price guarantee introduced by the government has eased some of the severe doom felt by many households,” she said. British prime minister Liz Truss last month capped household energy costs for two years. The typical household’s average annual bill was estimated to rise 80 percent to 3,549 pounds ($3,987) from 2,500 pounds ($2,808). Energy costs, particularly gas, have risen across Europe following Russia’s invasion of Ukraine.

“However, the ongoing rate of inflation combined with the recent rise in interest rates means that from October onwards shoppers will inevitably exercise even greater discretion and be more considered in their purchasing behaviour,” Wehrle said. “The impact on footfall and therefore on retail sales will be immediate, with it also being likely that fewer trips will be made to larger centres that incur a greater travel cost.”

Retailers across the pond are feeling the effects of what’s shaping up to be an economic decline.

Related Stories

Next Plc issues profit warning

Next’s decision to cut second-half guidance shows its worries about what inflation remains through the end of the year. The retailer first sounded the alarm in January, saying demand could suffer after it raised prices starting in the spring season.

Last month it said it expects full year profit of 840 million pounds ($963.7 million), up 2.1 percent from a year ago but below initial estimates of 860 million pounds ($986.7 million).

“August trade was below our expectations and cost of living pressures are set to rise in the coming months. Sales in September have improved, and we may see benefits from recent Government [stimulus] measures,” Next CEO Lord Wolfson said in a statement. Full-price second-half sales are seen falling 1.5 percent instead of growing 1.0 percent. That would mean full-year sales could grow 4.8 percent.

For the first half ended July 30, 2022, profit before tax was up 15.5 percent to 401 million pounds ($460.1 million), and total full-price retail sales, excluding Next Platform, rose 12.4 percent to 2.44 billion pounds ($2.80 billion). Including Next platform sales and those through the company’s franchise division and Next Sourcing, total group sales rose 14.9 percent to 2.55 billion pounds $2.92 billion).

Wolfson said retail prices could rise in the second half, particularly if the pound continues to weaken. “It looks like we may be set to have two cost of living crises: this year, a supply side-led squeeze, next year a currency led price hike as devaluation takes effect,” he said.

The company is set to report third-quarter earnings on Nov. 2.

JD Sports Fashion

The sports and fashion retailer’s interim first-half results through July 30, 2022 showed an 18.2 percent drop in profit before tax to 298.3 million pounds ($342.2 million), or 3.58 pence ($0.046), from 364.6 million pounds ($418.3 million), or 4.44 pence (0.046), in the year-ago period. Revenue for the period grew 13.7 percent to 4.42 billion pounds ($5.07 billion) from 3.89 billion pounds ($4.46 billion).

The company reached an agreement with former chairman and CEO Peter Cowgill that’s valued at 5.5 million pounds ($6.3 million). He will be paid $3.5 million pounds ($4.0 million) over a two-year period for his agreement to not work for or advise any of JD Sports’ competitors, and won’t solicit any JD employees. And he will be paid 2 million pounds ($2.3 million) over a three-year period as a consultant to help chairman Andy Higginson and CEO Régis Schultz transition into their new roles. That’s on top of a year’s salary of at least 906,000 pounds ($1.0 million) and potential bonus of up to 450,000 pounds ($516,291.75), as the retailer chose not to “honour his contractual notice period” of 12 months.

Cowgill left in May under a cloud after British regulatory authorities fined the retailer 4.3 million pounds ($5.8 million) when it learned that he violated an interim order related to JD’s banned Footasylum deal. Cowgill was told not to share any confidential or commercially sensitive information with the takeover target, but a video surfaced showing him meeting with Footasylum chairman Barry Brown. JD lost 48.5 million pounds ($66 million) when the Competitions and Markets Authority (CMA) forced it to walk back the deal.

CMA accused JD of price-fixing because of the “level and timing of discounts” of some Rangers-branded apparel towards the end of the 2019 football season, also under Cowgill’s tenure. Because JD fully cooperated in the probe, CMA cut the final penalty to 1.5 million pounds ($1.7 million). JD said it would recognize a 2 million pound ($2.3 million) charge for the 52 weeks ended Jan. 29, 2022, including legal fees. “No directors or senior management of JD were involved in the offending conduct,” it said in a statement, saying it’s working to strengthen competition compliance.

JD said it has reached an agreement with former chairman and CEO Peter Cowgill in a deal valued at $5.5 million. Matthew Horwood/Getty Images

Boohoo also warns on annual sales and profits

Boohoo Group Plc said a flood of customer returns and the dismal economic climate forced it to slash its annual forecast.

“Performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand,” said John Lyttle, CEO of the Karen Millen, PrettyLittleThing and Nasty Gal owner.

For the first half ended Aug. 31, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was 35.5 million pounds ($40.7 million) on sales of 882 million pounds ($1.01 billion). It reflected a 58 percent drop from last year’s 85.1 million pounds ($97.6 million), while revenues for the half fell by 10 percent from 975.9 million pounds ($1.12 billion).

Gross revenue before returns rose 4 percent on higher average order frequency and spend per customer offset by sagging consumer demand. The fast-fashion e-tailer in July started charging a 1.99 pound ($2.37) fee for customer returns, following in Zara’s footsteps. Boohoo said U.K. revenues fell 4 percent, as “inflationary pressures increased and consumer demand appears to have been impacted by cost of living pressures.” International revenues fell by 17 percent as longer delivery times cut into sales.

Boohoo has responded by ramping up near-shore sourcing, and lowering forward inventory commitments.

It expects sales to fall 10 percent, similar to the first half, instead of growing 2 percent. Adjusted EBITDA margins are expected in the range of 3 to 5 percent, down from earlier forecasts of 4 to 7 percent.

Joules on turnaround amid CVA rumblings

With Joules souring on Next Plc, it’s now said to be considering a CVA or company voluntary arrangement, meaning it could work out a deal to pay creditors over a fixed period without resulting to administration, ie bankruptcy, or liquidation.

Joules on Thursday said it is “making good progress” in developing a turnaround plan focused on growing profits, pursuing more profitable categories and optimizing its channel mix. “Interpath Advisory is assisting the Board with an initial assessment of certain elements as part of the development of this turnaround plan,” it said.

Interpath, once part of KPMG and now owned by H.I.G. Capital LLC, is known for restructuring and M&A.

Joules has been working with experts to enhance liquidity after it said full-price sales were faltering. Sales “softened materially” for the first 11 weeks of the new fiscal year, it said in August. It is scheduled to report financial results for the year ended May 31, 2022, in November.

Frasers Grows MySale stake

Frasers Group might have gotten the big snub when MySale Group PLC rejected its offer, but that didn’t stop the Sports Direct parent from growing its MySale stake.

The British conglomerate said on Monday that it has acquired 100 million MySale shares from Jackson Family Capital Pty Ltd., as well as 61 million shares from Jamie Jackson, the former vice chairman and founder of retailer Jamie Jackson, all at 2 pence ($0.023) per share. Frasers also swapped its interest in contracts for difference into 1.4 million MySale shares, and acquired nearly 13.2 million shares by “means of market or other purchases.”

Frasers acquired its initial 28.7 percent stake in the Australian firm in June. Including the newly acquired shares, it now owns about a 45 percent stake in MySale. Frasers also said it agreed to purchase an additional 1 million MySale shares from others.

John Lewis fashion rental

John Lewis Partnership is working with Hurr on women’s wear rentals for 4-, 8-, 10- or 20-day periods.

Search results can be filtered by category, brand, availability, size and price. Consumers pick their delivery dates, and use pre-paid packaging to return their rentals. “High value” rentals require ID verification and a refundable security deposit requirement. John Lewis also created a Damage Protection add-on for 5 pounds ($5.75) for minor repairs. Renters are responsible for the entire replacement value in cases of theft or irreparable damage.

Items that don’t fit are eligible for a refund of the entire rental fee, minus dry-cleaning and shipping costs, and must be returned by the second day of rental agreement. The retailer can charge a late return fee of 25 pounds ($28.65) for each day after the last rental date.