Summertime and business is awful

Dismal weather, a stock market crisis and a strong pound have all wrought havoc this year...Has this been the worst summer ever for British business?
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The Independent Online

It wasn't meant to be this way. As winter turned to spring just a few short months ago, Britain's biggest businesses - and their shareholders - had every reason to be optimistic. Weather forecasters predicted a sizzling summer, with hosepipe bans the only cloud on the horizon. The UK economy remained in robust health and the sub-prime mortgage crisis was a distant problem for one part of the American financial services sector.

In short, there was no reason to expect consumer spending to falter in those sectors that depend on the crucial summer months for key revenue. And as the FTSE 100 moved ever closer to cresting the all-time peak of late 1999, investors were finally beginning to put memories of bear markets behind them.

One summer season on - barring a dramatic change of conditions both meteorological and financial - and those spring shoots of optimism are set to be nipped in the bud. Dreadful summer weather has done its best to wash out sales across a string of business sectors and the global credit crunch has done for the share price of pretty much every other company that might have been entitled to feel immune from the never-ending rain.

Visitors from overseas have never visited Britain for its climate, so the tourism sector at least might have hoped to ride out the storm. No such luck. The strength of sterling this year, particularly against the US dollar and Japanese yen, has pushed up the cost of coming to the UK for two populations who have been mainstays of the tourism trade.

And just when you thought things couldn't get any worse, the Caribbean hurricane season is just beginning. Anxiety about the direction of Hurricane Dean pushed the oil price upwards last week and though the industry looks set to escape the worst of the storm, others will follow. Add in the effect of rising tension in the Middle East and the price of oil could head back above its record high. Britain's business leaders must be looking forward to autumn and winter.

Reports by Karen Attwood, Sean Farrell, Sean O'Grady and David Prosser.

Retail

There's no escape for retailers, especially fashion chains, when the summer weather is as appalling as this. The constant rain has meant consumers have been reluctant to invest in summer wardrobes which had led to many retailers bringing sales forward with discounts as high as 70 per cent seen everywhere from high street retailers such as Monsoon through to department stores. Sports retailers such as JJB and Sports Direct has also taken a hit. Sports Direct blamed its "exceptionally difficult" first quarter on "the unprecedented weather conditions".

Heavy discounting encouraged shoppers back into the stores last month, but will affect retailers' margins. Gardening and DIY retailers have also seen sales growth stagnate, while big ticket items, such as furniture and electrical items, have been bearing the brunt of five successive interest rate rises, which have weakened consumer confidence further.

The weak performance has meant that shares has taken a hammering - the general retail sector is down 12.2 per cent in the year to date, compared to a fall in the All-share index of 2.9 per cent.

Leisure

Earlier this summer, Scottish & Newcastle was the first FTSE 100 company to blame the rain for a slump in sales. The UK's biggest brewer, which makes Foster's, Kronenbourg and John Smith's, said the total UK beer market had declined by 5 per cent in the first half. Chief executive Tony Froggatt warned that the weather would make this year's trading targets difficult to achieve. There were further woes from C&C, maker of Magners cider, which issued two profit warnings in less than three weeks. The company enjoyed strong sales last year as the hot summer encouraged a cider-over-ice boom, but this year has seen a downturn in trading. Pub groups have been investing in outdoor areas for smokers and the smoking ban was timed for the summer with the aim of mitigating the effects. However, these brand new terraces and improved garden areas have often been left unused this summer.

Oil

Britain's weather may have been miserable this summer, but not compared to the havoc being wrought by Hurricane Dean in the Caribbean. While the storm was last night expected to pass south of the biggest oil-production areas in the Gulf of Mexico, it has forced much of the industry to take evasive action.

The price of oil rose sharply last week as producers including BP and Royal Dutch Shell evacuated workers from offshore rigs ahead of the storm - and in many cases halted production. The oil price fell back yesterday, to a little below $70 a barrel, as traders concluded Hurricane Dean would not be as damaging as hurricanes Katrina and Rita, which in 2005 wrecked production facilities and refineries along the Louisiana and Mississippi coasts in the US. However, the storm has already shut close to 2 per cent of production in the region.

Food and drink

The lack of sunshine has hit sales of fresh produce, barbecue and party food and drinks. This has been compounded by the fierce price war among the supermarkets. One analyst said the like-for-like sales performance across the sector has been the worst in at least five years. Last month, Wm Morrison blamed the bad weather and comparatives with last year's World Cup football tournament for a slowdown in sales. Marks & Spencer's chief executive, Stuart Rose, who last year famously said "weather is for wimps" was forced to eat his words after the retailer reported its weakest quarterly sales for almost two years. M&S usually makes a killing with its pre-packed picnic and party foods in the summer. Logistics business Christian Salvesen yesterday warned that a poor vegetable harvest will affect its first-half performance. The potato has been one of the biggest victims of the rain, pushing up the price of fish and chips, while strawberries have had to be imported after the crop was wiped out in parts of Britain.

Tourism

Although the weather certainly hasn't helped, it is the strong pound that has had the biggest impact on the UK tourist industry, making popular destinations, and in particularly London, too expensive for holidaymakers. A survey from the travel search website cheapflights.com has revealed that London has fallen out of the top 10 list for US users, falling from seventh place to 15th over the past year. On the other hand, more British holidaymakers have been choosing to jet overseas in search of sunshine, giving a boost to tour companies. Last week, the Government announced a £1m cash grant to support rural tourism in England, mindful that the public are fleeing abroad. Day trips in particular have suffered, to places such as Alton Towers and Chessington World of Adventures, as families have stayed home watching television or doing the DIY rather than braving torrential rain. According to one report, an animal adventure park in Gloucestershire called Cattle County saw its takings drop by a third in recent weeks and by as much as 90 per cent on certain days.

Markets

Market crises in August are rare, but this month's sell-off on stock exchanges, sparked by turmoil in the credit sector, has triggered fears of an impending bear market. Peak to trough, the FTSE 100 index has lost 13 per cent of its value this year. This is benign in historical terms. From 2000 to 2003 shares fell by about 50 per cent from their dot.com-fuelled highs, for example, while the 1998 Asian/Long-Term Capital Management crisis resulted in a slump of 16 per cent. Still, business will not escape damage as there is now so much wariness about lending. Consumers may also feel poorer once they realise their pension has been devalued. Credit Suisse suggests that a 10 per cent fall in share prices will result in a 7.5 per cent fall in business investment and a 2.5 per cent fall in consumer spending within two or three years.

Insurance

Insurers have been among the big losers, with the floods of June and July costing the industry some £3bn in claims. The bill is far higher than the £1.2bn cost from the floods in 2000. Norwich Union, owned by Aviva, said that the floods could cost it £340m in payouts to customers. The company, which insures about one in five UK homes, plans to raise domestic property insurance premiums by an average of 10 per cent, though it said the timing was coincidental. Yesterday, the specialist insurer Hiscox said the floods would probably cost it £50m, and that its prices would go up as a result. "Norwich Union has announced that property prices will increase and our property prices will increase as well," said Bronek Masojada, chief executive. British general insurers are also exposed to extreme weather outside the UK such as the storms of the US hurricane season.

The wet-weather winners

Here's the good news: this summer has not been a wash-out for everyone. Retail sales online jumped a record 80 per cent last month as shoppers stayed away from the rain-sodden streets and chose to go online.

The proliferation of high-speed broadband connections and more sophisticated websites means that shopping over the internet has become quick and easy. Figures from Interactive Media in Retail revealed that sales rose to £4.2bn in July from £2.34bn the year before. The highest-growing sector for online purchases was electrical goods.

Also, while tourism has been hit hard by the strong pound, the rainy weather has given a boost to some visitor attractions, sending more holidaymakers looking for cover than sightseeing outdoors. According to Visit London, attendance levels at London attractions rose by 5.2 per cent in June compared with the same time last year. The top attractions were Tate Modern, the British Museum and the National Gallery.

HMV and WHSmith have also been given a boost this summer as consumers bought more books, CDs and DVDs to while away the rainy days. Earlier this month, WHSmith said its fortunes were helped by a strong performance from its shops at railway stations and airports as UK holiday-makers fled to sunnier spots armed with holiday reading, which has also given a lift to holiday companies.

Finally, wellington boots and other wet weather gear have been flying off the shelves. Hunter reported a surge in demand for its boots earlier this month, while Blacks Leisure's Millets chain has done a roaring trade in tents and waterproofs for the festival season.

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