logo-loader
viewDebenhams PLC

Will 2020 bring better times for retailers?

After carnage on the high street in 2019, analysts see a better 2020 on the horizon with reduced political uncertainty, rising wages and improved business strategies

The coming year will not be as bad for retailers, according to analysts

The carnage in the retail sector over the past year could be set to improve in 2020, but is it an area worth investing in?

The past twelve months saw all sorts of high street names closing shops in the UK, from House of Fraser to Mothercare PLC (LON:MTC).

In the case of House of Fraser, its acquisition from administration by Sports Direct International PLC (LON:SPD) was the opposite of a saving grace for anyone involved.

Mike Ashley’s empire posted horrific results in July, albeit after revealing a surprise €674mln Belgian tax bill, while its management also shocked by saying they could not predict profits for the year ahead from House of Fraser.

The woes of the department stores chain echoed that of luxury firm Mulberry Group PLC (LON:MUL) and fashion group Quiz PLC (LON:QUIZ), with the former taking a £3mln hit and the latter scrapping its dividend after a 97% slump in pre-tax profits.

“It is unlikely that we will see the same scale of large, big name retailers going into administration next year, but we do still expect administrations in the retail sector to continue at some pace,” according to Richard Fleming, manager director at research house A&M.

Long-standing businesses are still coming to terms with behavioural changes, such as lower spending due to political uncertainty or younger customers preferring experiences to products.

Online shopping has been dragging down footfall on the high street, with shop margins also shrinking due to long-term lease contracts.

According to data from the Centre for Retail Research, retailers pay 257% of their sales in business rates, with brick-and-mortar firms carrying the heaviest burden as business rates for them account for 2.3% of turnover.

By contrast, business rate costs account for 0.6% of online sales, which experts say did not make much difference when online was only a fraction of total shopping but as online growth rises this will have an impact.

Internet marketplaces have been thriving, retail consultancy GlobalData has pointed out, with online spend set to rise by £13.1bn by 2024.

However, competition remains fierce and the festive period remains “crucial” in determining a company’s survival in the new year, A&M's Fleming said.

As competition hots up, the discounting, traditionally meant to start on Boxing Day, has been going on well after the new start date of Black Friday, even for the likes of AIM’s deposed online retail “king” ASOS PLC (LON:ASC).

Accountants Deloitte have predicted that average discounts would reach 50% on Christmas Eve and its research found that December’s price tags were reduced by as much as 78%, especially on clothing.

“It would be better in the long run for them to hold off until after Christmas, but it is just proving impossible for most retailers,” Patrick O'Brien, UK retail research director at GlobalData, told Proactive.

“The genie cannot go back in the bottle, because once you have trained your customers to expect discounts in certain periods, they tend to hold off their spending until those discounts arrive.”

Experts say the way forward is for retailers to better understand their customers, who are increasingly looking for a personalised experience.

“Brands who are giving shoppers a good reason to get out their house and come visit the stores still exist,” Kyle Monk, head of retail insight and analytics at the British Retail Consortium, told Proactive.

One example is clothing retailer Primark, owned by conglomerate Associated British Foods PLC (LON:ABF), which keeps racking up sales growth and opening new shops.

In a recent sector note, analysts at Peel Hunt said that other companies set to perform well in the coming year should be JD Sports Fashion PLC (LON:JD.) and Dunelm Group plc (LON:DNLM) in the brick-and-mortar space, plus Boohoo Group PLC (LON:BOO) for the online players.

According to A&M's Fleming, physical retail remains the “bedrock” of the shopping experience, although by 2024 it will account for only 65% of sales, down from the current 80%.

The political clarity following the recent UK general election has lifted the sector, helped by rising wages and employment levels for consumers, but the sky will not really be clear until a final Brexit deal is reached.

GlobalData's O’Brien said retailers may enjoy a good start to 2020 as the confirmation of Brexit at the end of January "brings further clarity at least."

But he added: “Any boost may be short-lived though, as negotiations on a trade deal with the EU begin; we expect brinkmanship to resurface especially as the end-of-2020 deadline for negotiations gets closer.”

Quick facts: Debenhams PLC

Price: - -

LSE:DEB
Market: LSE
Market Cap: -
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Castillo Copper's Ged Hall updates on key assets and progress on London dual...

Ged Hall works with London stockbroker SI Capital and is also a non-exec director at Castillo Copper Ltd's (ASX:CCZ). He discusses how the two came to work together as well as updates on what Castillo's doing as far as the Mt Oxide project in Queensland, Australia. 

1 day, 23 hours ago

4 min read