The retail note - 29 March 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
3 minutes to read
- Official retail sales figures from the ONS surprised on the upside. Year-on-year retail sales values (exc fuel) grew by 5.2% and volumes increased by 4.1%. While it would be naïve to read too much into February’s figures, they at least prove that retail sales are not on a linear decline. Stripping out fuel (+18.2%) also reduces the ‘headline’ inflation figure of 2.8% to a much more palatable 1%.
- The turnaround continues at Moss Bros. The menswear retailer reported that in the 52 weeks to 28 January, pre-tax profit rose 20.3% to £7.1m while group revenue increased by 5.7% to £127.9m. EBITDA increased 8.8% to £13.6m, driven by more strategic discounting, tight cost control alongside improved sales. Like-for-like retail sales were up 6% during the period and like-for- like sales in its hire business rose by 1.5%.
- Card Factory has announced its preliminary results for the year ended 31 January 2017, revealing a 4.3% rise in revenue to £398m. Underlying EBITDA rose 3.8% and profit before tax also increased 3.8%. However, operating profit fell 3.7%. A total of 51 new stores were opened during the year, bringing the total estate to 865 at year-end.
Stephen Springham, Head of Retail Research:
A raft of retailer ‘failures’ in a short space of time has given the retail doom mongers plenty of ammunition. But I’m not convinced they are representative of the UK retail sector as a whole, nor a direct reflection of underlying distress.
The retailers affected? Blue Inc, Brantano, Jones Bootmaker and reportedly Store Twenty One. The common denominators? Private equity ownership, chequered history and exposure to clothing and footwear, the most over-shopped retail market in the UK. It can be no coincidence that all four of these retailers tick all three of the ‘alarm bell’ boxes. Of these, Blue Inc and Jones Bootmaker will live on as brands, the former less 33 stores as a result of its CVA, the latter less 25 stores following a pre-pack administration deal with private equity firm Endless. At time of writing, the futures of Brantano and Store Twenty One have yet to secured, but it would seem a fair bet to assume their respective fates will follow a similar course.
The other major ‘casualty’ was 99p Stores. Or rather, the rump of the business that was previously 99p Stores. Or rather, the bits that Poundland didn’t want because they weren’t producing the goods or there was store overlap with its existing estate. ‘Value chain 99p Stores tumbles into administration less than two years after it was bought by Poundland’ is something of a disingenuous headline. Nor does it herald the beginning of the end for poundshops, as some are predicting. Poundland has retained around 190 stores of the 99p Store portfolio, disposing of the other 60 by keeping them as a separate subsidiary and placing that into administration. So, not a retailer failure in the truest sense.
The various administrators and other protagonists have been quick to point to old chestnuts such as “the sharp decline in sterling, the ongoing shift in consumer shopping habits and the evolution of the UK retail environment”, but they hold limited sway. Few retailers fail because consumer demand is not there, many more because of their own operational and financial shortcomings. It is probably no coincidence that this fall-out has come about now, with quarterly rent bill for many still falling on 25 March.
Brexit, the rise of online, faltering consumer confidence. Blame what you like, but most retailers that fail do so because they can’t pay the rent.
Read the latest Shopping Centre Investment Quarterly Q1 2017