(Bloomberg Gadfly)—Now that the Christmas-tree tinsel has come down, Mothercare Plc, the parent and baby goods retailer, has worsened the January blues.
After Thursday’s profit warning from Debenhams Plc, No. 27 in the Internet Retailer 2017 Europe 500, Mothercare (No. 134) cautioned that adjusted full-year group pre-tax profit would be in the 1 million pound ($1.4 million) to 5 million pound range. The consensus of analysts’ forecasts prior to the warning was 11.9 million pounds, according to Bloomberg data.
It is becoming clear that consumers spent a little less over Christmas, amid inflation outstripping wage growth, nervousness over Britain’s impending exit from the European Union and the prospect of interest rate rises.
December spending fell by an annual 1%, with overall expenditure for last year down by 0.3% from 2016, according to Visa U.K.
But the pain from consumers cutting back isn’t likely to be evenly spread across Britain’s shops.
Food retailers will have benefited from inflation. As Gadfly has noted, higher food prices boost the value of sales compared with the year earlier. And if there is one time of the year when shoppers are prepared to stomach higher food prices, it’s Christmas. But elevated food costs soak up spending in other parts of the market.
And amid these conditions, chains with little to mark them out from the sea of competition have been hit particularly hard. Tellingly, Mothercare‘s online sales fell 6.9% in the 12 weeks to Dec. 30. Baby and children’s wear should be resilient, but Mothercare faces the twin threats of Amazon.com Inc. (No. 1 in the Europe 500 and the Internet Retailer 2017 Top 500) and the supermarkets, many of whom have sharpened their non-food offerings. Mothercare had an Internet Retailer-estimated $235.2 million in web sales in 2016.
With this backdrop, the one to watch this week is Marks & Spencer Group Plc (No. 23 in the Europe 500), which will report third-quarter sales on Thursday. It has made a valiant effort to rein in discounting, but the flurry of special offers across the market might have hurt its top-line clothing sales. Its food business has also weakened recently.
House of Fraser Ltd. (No. 69), which has asked landlords for rent reductions, is also vulnerable given Debenhams’ woes. The department-store chain will also report sales this week.
Consumer conditions may improve in the second half of the year, as inflation eases. Until then, retailers face months of pain as they are saddled with increases in their own costs, as well as retrenching shoppers. Expect another lurch downwards in consumers’ willingness to spend when the credit card bills land on doormats over the next few weeks.
No-one will escape these pressures. But “me-too” chains, with little to persuade consumers to shop with them rather than Amazon, have the most to lose. Expect the winners and losers to become even more polarized.
—With assistance from Gadfly’s Mark Gilbert
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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