Fashion retailers are feeling more pessimistic than the rest of the retail sector, according to a survey of leading executives
More than 70% of fashion retailers in the UK do not expect the consumer market to pick up before the end of this year, a survey of leading executives has revealed.
After a tough six to nine months in which sales have been hit by consumers reining in non-essential spending, fashion chains are more pessimistic than the retail industry as a whole.
More than half of the 14 fashion retailers questioned in the survey, including Next, New Look, Arcadia Group, House of Fraser and Marks & Spencer, predicted a slow crawl out of the recession. Just 29% of them expected the market to pick up this year. This compared with 34% of the total group of 29 retailers questioned by PR firm Kreab Gavin Anderson.
Sir Stuart Rose, executive chairman of Marks & Spencer, said: “It is going to be a delicate and steady progress into improvement. It won’t be sudden.”
The blame game
While banks and government were seen as partly to blame for the credit crisis, retailers also blamed society’s greed for credit and their own over-expansion for the problems.
As a result, nearly 86% of fashion retailers expected to see more consolidation in their market, with several saying it was clear that too many stores had been opened in more optimistic times.
Warning that the downturn was likely to get worse this year, Alan White, chief executive of home-shopping firm N Brown, said: “It is a double-edged sword. Retail workers are losing their jobs and they are also customers, but there has been too much retail capacity for quite a while and in the long term there needs to be a reduction.”
Sir Philip Green, owner of Arcadia Group and Bhs, said: “This [situation] is not something that just turned up. It has been in the pipeline for ages.”
Most fashion businesses said things might get more difficult from the second half of this year as inflation comes through when currency hedges, which protect stores from recent collapse in the value of sterling, unwind. Some predict inflation of as much as 20% and others of between 5% and 10% as retailers struggle to absorb rising costs.
Only 7% of fashion retailers predicted deflation. The poll also found that fashion chains were more likely to be considering job cuts and to have at least some suppliers suffering from problems with credit insurers.
Amid the gloom, middle-market retailer Next’s chief executive Simon Wolfson said retailers must face up to the new reality to avoid damage caused by discounting. He said: “We’ve been prepared for this for 18 months and it has all been about keeping costs as low as possible. The biggest cost in retail is stock and the most important thing is to set a realistic budget and do everything to mitigate the business through the top-line trauma.”
Handling that trauma is going to be tough, as retailers generally feel the current downturn is the most severe they have experienced. They said that difficulties in handling the situation were exacerbated by the complexity of the credit crisis, which made it difficult to assess how conditions might progress.
Retailers in the survey also felt that the recession made it more difficult for them to get help from their banks to trade through the downturn, and that a broader customer base had been affected.
Joseph Wan, chief executive of luxury department store Harvey Nichols, said: “The last recession was about property and unemployment, and at least if you had the right products the wealthy were still spending. This time there is so much wealth destruction, trillions of pounds have evaporated.”
One thing, however, is clear - while upmarket chains have not escaped market problems, value chains are romping away. Not surprisingly, the likes of Peacocks and New Look were among the most optimistic of the retailers quizzed.