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Tough 18 months ahead for UK retailers, warns Moody's

UK retailers will face more challenges than their European counterparts over the next 18 months as the Brexit vote adds to existing pressures, ratings agency Moody’s has warned.

Clothing retailers in particular will struggle to achieve like-for-like sales and profit growth, Moody’s said in a research note published today.

Moody’s forecasts annual retail sales growth of 1.5% to 2% in Germany, France and the Netherlands, and 3% in Spain.

It said the UK’s annual retail sales growth would be broadly in line with Germany and France. However, it warned market conditions would remain particularly competitive for UK-focused retailers, and that there would be heightened uncertainty about economic growth following the Brexit vote adding to pressures from the living wage legislation and, in fashion, the trend of declining volumes since December 2015.

Moody’s has already lowered its expectations for current fiscal year profitability for most of the UK fashion retailers it rates.

It forecasts negative EBITDA growth for House of Fraser, Marks & Spencer and Next between now and the end of 2017, and an increase of between 0% and 4% at Debenhams and New Look. Matalan and Tesco will enjoy 8% to 12% growth.

“Following the Brexit vote, UK clothing retailers could find it tough to fully pass on cost increases incurred as a result of sterling’s weakness,” said David Beadle, vice-president and senior credit officer at Moody’s.

“This is because we expect the market to remain highly promotional, with plenty of discounting, as volumes so far this year have been hit by unseasonal weather, shifting consumer spending and weak consumer sentiment around the time of the vote.”

However, Moody’s also noted that Christmas is typically more important to annual profitability than the spring and summer months. “A strong Christmas could yet help clothing retailers recover lost ground,” the research note said.

 

Readers' comments (1)

  • Black Friday has killed profitability at Christmas for fashion retailers.

    Physical stores are further losing margin by losing focus. Too busy dealing with online returns and merchandising planograms from Head Office that don't reflect the weather or their local market.

    'Busy fools' comes to mind.

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