Investors go cold on retail
Confidence hit by first drop in sales for three years
Sunday 02 August 1998
Shares in once-modish consumer, pub and leisure companies have plunged. An investor holding an index-weighted selection of FT-SE 350 general retail stocks would have seen 8 per cent wiped off its value since the start of June. Brewing stocks have dropped 7 per cent and leisure companies 13 per cent. The total index has slipped 1 per cent.
Last month, the Office for National Statistics posted the first annual drop in general retail sales for almost three years as six increases in interest rates took their toll. GfK, a consumer-research company, said consumer sentiment turned negative for the first time since April 1997. More recently, though, positive news from companies such as Debenhams has clouded the picture.
"No one knows which way the economy is going. People feel there's no place to hide," said Fraser Ramzan, an analyst at Lehman Brothers.
PaineWebber International says it expects consumer spending to grow 3.9 per cent this year, down from 4.6 per cent in 1997, slowing to about 2 per cent in 1999. A manufacturing slowdown "is starting to feed through into the rest of the economy", said economist David Brickman.
Retailers tend to feel the first chill of a slowing economy as consumers rein in spending in stores, particularly those selling big-ticket items such as furniture and electrical goods.
Hotels are also sensitive to economic downturns, when business travel declines and people cannot afford holidays. Pubs and restaurants are not immune, even though leisure spending is forecast to command an increasing proportion of household spending.
Companies such as Scottish & Newcastle, Whitbread and Allied Domecq, have funnelled millions of pounds into branded pubs, and some analysts fear that has created too much capacity. And nightclub operators such as First Leisure are finding consumer enthusiasm dwindling.
Analysts are not sure what this all means. "What's hard to define is how much is about the weather and the World Cup and what is wholly economic," said Christopher Page, an analyst at Goldman Sachs. "We may not know that until we get into the autumn."
The trading picture is contradictory. Recent evidence from companies such as Debenhams and Blacks Leisure Group suggests sales recovered in July.
"I don't think it's all doom and gloom, but in the second half of the year there will be shock news because of the strength of last year," said Robert Clark, a director at Corporate Intelligence on Retailing.
Samantha Gleave, an analyst at Sutherlands, said the big companies are in the best position. She recommends Marks and Spencer, Dixons and Great Universal Stores. "Some of the big stores like Marks & Spencer perform better in a recession," she said. "Big companies are able to generate economies of scale."
Iain Wilkie, a partner in the hospitality and leisure division of Ernst & Young, agrees that might is right. "People will move towards quality," he said. "If you have a brand that people understand, it is going to hold up much better." He also expects the health and fitness industry to hold firm: good news for companies such as Stakis, which wants to double its health-club membership by the end of 1999.
Two factors mitigate against pessimism. Lean, 1990s-style companies are better equipped to cope with a downturn than at the turn of the decade. Further, most analysts expect the slowdown to be gentler than last time.
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Exclusive: Impact of immigrants on British workers ‘negligible’
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 1 Bad cattitude: Family call police after crazed and 'hostile cat with a history of violence' attacks baby before attempting to 'flee custody'
- 2 Family forced to flee home after discovering 'terrifying' nest of spiders in bananas
- 3 First Kiss: Filmmaker gets 20 strangers to make out on YouTube with awkward results
- 4 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 5 Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...