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Retailers predict tough 2010

The fashion industry has predicted that the new year will bring as many challenges as 2009 but said the final trading run-up to Christmas had generally been pleasing.

Most retailers are expected to launch full-blown Sales this weekend or by Monday at the latest to maximise the late Christmas shopping rush, but those contacted by Drapers this week said trading in December had picked up thanks to the arrival of a cold snap.

Carl McPhail, chief executive of fast-fashion chain New Look, said: “Christmas trading overall has started strongly this year and while the volume of promotional activity remains high, retailers are conducting themselves in a much more disciplined manner compared with a year ago. However, customers are still nervous about prospects
for next year and so we continue to plan cautiously.”

Peacock Group chief executive Richard Kirk said both its Peacocks and Bonmarché value chains had seen a strong week of trading thanks to the colder weather.

However, although there was optimism around Christmas, retailers and brands warned that 2010 would be at least as tough as 2009 but that it would be characterised by a renewed focus on core trading disciplines rather than the cost-cutting strategies that took place in 2009.

Retailers warned that a change of government following the general election next May was likely to bring higher rates of both business and personal taxation, which could severely hamper any economic recovery. Rises in VAT, the weak sterling, increases in labour costs in China and rising freight charges are also expected to heap massive pressure on margins, though none of the retailers quizzed by Drapers predicted there would be inflation in the sector next year.

Kirk said: “I’m worried about the economy after the general election. We all know the Government has got to reduce the deficit somehow, but it has to be very careful. We have to recoup the money, but it should be in the form of public spending cuts rather than higher taxes.”

Mark Newton-Jones, chief executive of home-shopping retailer Shop Direct Group, added: “2010 will be very tough. There are pretty difficult Government-led issues coming down the tracks. People will tighten their belts with tax increases and more unemployment is likely.”

However, UK Fashion and Textile Association chairman Peter Lucas said a new government could help to change customer mindsets. He said: “I think a change and a refocusing of the political system and process is needed to allow consumer confidence to flow through.”

One young fashion chief executive told Drapers that retailers would have to swallow cost increases in 2010. He said: “There is no way the consumer will stomach price rises in the fashion sector next year. It’s just not an option.”

He added: “We will have to go back to basics – negotiating really hard with suppliers and making sure we are totally on top of stock and trading. We’ve all already taken as much out of our businesses as we can this year.”

There were some bright spots though, with the value sector and online sales both predicted to
grow next year while others said the football World Cup, which takes place in South Africa next June, would create general good feeling across the UK which would help to lift the gloom.

Four retailers give their forecasts for the year ahead

Richard Kirk Chief executive, Peacock Group

We didn’t see a big drop during the recession because of our value offer, and we expect to see consumers responding to value again next year. We are planning for like-for-like growth in 2010 and will be upping our store numbers.

Phil Wrigley Chairman, New Look

The environment in 2010 is going to stay every bit as challenging as 2009. It will be the kind of environment where we get winners and losers and those that need help. Consolidation will continue as people come under pressure on their profits.

Peter Lucas Chairman, UK Fashion and Textile Association (UKFT) and Baird Group

I expect next year we will see the economy grow by between one and two percentage points, which will be led by product innovation. Consumers want innovation and product with a point of difference.

Michael Sharp

Deputy chief executive, Debenhams

2010 will undoubtedly be at least as challenging as 2009. Value for money once again will be paramount but don’t confuse this with lowering prices.

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