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.
- 1 Reader dilemma: 'Our son is 34 with an IQ of 85, and spends all his time in his room. What will happen to him when we're no longer here?'
- 2 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 3 Russian officials ban yoga because it's too much like a religious cult
- 4 German ethics council calls for incest between siblings to be legalised by Government
- 5 Ginger Pride festival to take place next summer, organisers say 'time of bullying gingers is over'
Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
German ethics council calls for incest between siblings to be legalised by Government
People are American flagging their Facebook profile pictures in response to those rainbow flagging them
Ginger Pride festival to take place next summer, organisers say 'time of bullying gingers is over'
Historic meeting between Pope Francis and Russian Orthodox head 'getting closer'
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...