Retailers see slow consumer recovery

LONDON Thu Mar 22, 2012 1:00pm GMT

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LONDON (Reuters) - Two of the UK's biggest retailers, DIY group Kingfisher (KGF.L) and fashion chain Next (NXT.L), said conditions for consumers were likely to slowly improve this year after a prolonged squeeze in disposable incomes.

Retailers across Europe have been struggling as spending has been hit by rising food and fuel prices, muted wages growth, worries about unemployment and government austerity measures.

Official data from Britain on Thursday underlined how any recovery in sentiment will be a hard slog, as figures showed another cut in spending last month.

"I don't think things are going to get any worse than last year, they may get slightly better, but I don't think they're going to get a lot better," Next Chief Executive Simon Wolfson told Reuters on Thursday, after his firm reported a 5 percent rise in 2011-12 profit.

Wolfson, a prominent supporter of Britain's ruling Conservative Party who sits in the upper house of Parliament, said although falling inflation was good news for the consumer economy, its positive impact was being largely offset by unemployment and tight credit availability.

He is also concerned that any worsening in the euro zone sovereign debt crisis will feed through to the UK consumer.

February retail sales data from Britain's Office for National Statistics (ONS) fell well short of economists' forecasts on Thursday.

British retail sales suffered their biggest monthly fall in nine months and were revised sharply downwards for January.

British chains are hoping summer events, such as Euro 2012 soccer, the London Olympics and celebrations to mark the Queen's Diamond Jubilee, will stimulate trade.

"I think the feel good factor will be something that gradually comes in through the year," Kingfisher CEO Ian Cheshire told reporters after the group reported a 20 percent rise in year profit.

"The combination of Jubilee and the Olympics won't create immediate cash opportunities but it's an important part of getting people into a more positive frame of mind."

Cheshire is also hopeful Wednesday's Budget statement will boost the consumer. "Giving 3.5 billion pounds ($5.55 billion) to 24 million people is a helpful step in the right direction," he said.

Next, Britain's No.2 fashion retailer, said it made an underlying pretax profit of 570.3 million pounds in the year to end-Jan, near the top end of its forecast range.

It is budgeting for sales growth of 1-4 percent in 2012-13 and profit in a range of down 2 percent to up 7 percent.

"In many ways, Next's figures are a microcosm of wider trends in the retail sector: sales through physical stores are under significant pressure while online is continuing to show good growth," said analysts at Conlumino.

Kingfisher, Europe's biggest home improvements retailer, made a pretax profit of 807 million pounds in the year to end-January, slightly above analysts' average forecast, and detailed the next phase of its growth strategy.

"We aim to create a real leader in our industry and really break away from the pack," said Cheshire.

The group which runs the market-leading B&Q chain in Britain as well as Castorama and Brico Depot stores in France and elsewhere, plans to expand in existing markets and develop a common range of products.

Many British retailers are still struggling. Furniture chain DFS posted a 31 percent drop in first-half underlying earnings on Thursday, while video games retailer Game GMG.L on Wednesday filed a notice to appoint administrators.

Next shares, which have risen 10 percent over the last three months, were down 0.7 percent at 2,899 pence at 1119 GMT.

Kingfisher shares were up 1.3 percent at 304 pence. They have surged 23 percent over the past three months.

($1 = 0.6310 British pounds)

(Editing by Mike Nesbit and Elaine Hardcastle)

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