End of currency hedges coinciding with revalued business rates will lead to “terrible” second quarter.
Retailers are bracing themselves for what some are predicting will be the “toughest year” on the high street to date in 2017, as currency hedges come to an end and business rates revaluations kick in.
Many businesses have only hedged until the end of the first quarter of 2017, while the rates revaluations will come into effect on 1 April. Rateable values in some parts of London will rise by up to 400%.
The gloomy outlook follows a report by professional services firm PwC and Local Data Company which showed that fashion retailers closed 206 high street shops during the first half of 2016, but only opened 119 – resulting in a net loss of 87.
“Cost pressures such as the living wage are already weighing heavy on retailers and the business rates revaluation next year is going to hit hard,” said one property source. “It stands to reason that there will be more casualties. Margins will be thinner, so retailers are battening down the hatches. The second quarter of 2017 will be terrible.”
Retail analyst Richard Hyman agreed: “It’s the toughest market we’ve ever seen and next year is going to be even tougher. There’s no room for manoeuvre with suppliers. People think prices are going to go up next year but, if they do, customers will go elsewhere, as they are conditioned to buy on Sale.”
The chief executive of one value retailer agreed that it would be “very tough” to increase prices: “The consumer doesn’t want to shop full price as it is.”
However, the executive chairman of one footwear multiple argued that price rises were unavoidable: “If the fall [in the value of sterling] was 5%, then retailers would be able to absorb it, but a 20% fall against the dollar makes that very difficult and I’m sure we will see price increases next year.
“We will maintain the price on a lot of our entry-level product. However, where the style is distinctive with a real point of difference, we will increase the price.”