Troubled times on the high street as profit warnings soar
Monday 11 July 2011
The tough conditions faced by high-street retailers were thrown into sharp relief during the first six months of the year as the number of profit warnings soared, according to new figures published today.
The accountancy firm Ernst & Young said Britain's listed retailers issued 26 profit warnings between January and June, more than those issued during the whole of 2010 and almost twice the number in 2009.
The figures come on the heels of growing signs of trouble on the high street, with well-known names such as Thorntons and Carpetright issuing grim updates.
"The spending boost gained from the long run of spring bank holidays, the fair weather and the royal wedding can only provide a temporary fillip to retailers, many of which are burdened with debt, weakened by snow and under stress from years of tough trading," said Alan Hudson, an Ernst & Young partner and the head of the firm's restructuring unit .
He added that the sector's woes were not dissimilar to the dark days of 2008, when the financial crisis wreaked havoc on the economy. "The actual proportion of listed retailers warning is virtually identical in 2011 as it was in the troubled times of 2008, and future prospects don't appear to be getting brighter," he said. "The next three months will stretch more retailers to the limit as they approach the next quarter rent day and seek credit to stock up for Christmas."
On a more positive note, separate figures from BDO – whose high-street sales tracker analyses like-for-like spending at non-grocery retailers with annual sales of between £5m and £500m – show that while June was dominated by the challenges faced by household names such as Habitat and TJ Hughes, shoppers appear to have warmed to early summer promotions on the high street.
BDO said sales at these medium-sized retailers were up by 2.6 per cent during the five weeks to the beginning of July, which, though positive, is still below the 4 per cent result seen in June last year.
Fashion sales were up by 0.7 per cent last month, while homewares experienced the biggest boost from seasonal promotions, growing by 14.7 per cent. Non-fashion sales climbed by 4.1 per cent during the same period.
The figures offer a hint of optimism for the remainder of the year, said Don Williams, the head of retail and wholesale at BDO.
"There have been warnings in the media of a 'black September' for the high street, but these figures suggest the market will remain steady, if uninspiring, until the Christmas season," he added.
He did, however, warn that the prevailing pressures weighing down on consumer spending – such as inflation, tax and job security – are unlikely to change between now and the end of the year. Mr Williams also highlighted the lack of major public holidays, such as the one to mark the royal wedding, to boost sales during the remainder of this year.
He explained: "The only other factor that can have a universal effect on the high street is the weather, but even that is unlikely to spark variations of more than 2 per cent. Retailers will still have to work hard to encourage cautious consumers to spend. This environment will polarise the operators; the strong will benefit, but the weak will fail."
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