March 7, 2017 / 12:51 PM / 5 months ago

UK retailers get a spring reality check

3 Min Read

Shoppers enter the Arndale shopping centre in Manchester, northern Britain, February 21, 2017.Phil Noble - RTS1076K

LONDON (Reuters Breakingviews) - Spring is delivering a Brexit reality check to UK retailers. A slide in the value of sterling is boosting food and fuel costs, which is prompting shoppers to spend less on clothing, footwear, and other discretionary goods. That is ominous for stores, which are already having to cut prices to attract business. With their own costs going up, retailers are about to be squeezed on multiple fronts.

Non-food sales, which encompass everything from stationery to shoes, fell 0.4 percent in the three months to February compared with a year earlier, their first quarterly drop since November 2011, the British Retail Consortium said on Tuesday. The chances are that this is not just a blip. Granted, spending was robust over the Christmas week. But how shoppers behave after receiving their January pay is a better guide to how they feel about the outlook for their finances in the coming year, and to their inclination to go shopping. The latest numbers will therefore be a blow to any retailer who had hoped spending would keep defying the gloom and doom predicted in the aftermath of Britain’s June 2016 vote to leave the European Union.

All the more so since consumers’ resilience was one of the rare bits of good news for the British high street in the past year. Prices of non-food goods have been falling on a year-on-year basis since March 2013. Meanwhile, retailers face minimum wage hikes and some may have to pay more business property taxes, which the British Chambers of Commerce says are already among the highest in the developed world.

What’s more, some of the currency hedges that helped shield many retailers from the immediate impact of the British pound’s fall are beginning to expire. These companies will now have to pay more in sterling terms when they source goods from overseas. Their chances of persuading consumers to pay higher prices for non-essentials are fading fast, making their profit targets look increasingly ambitious.

    

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