United Kingdom
Can the retail recovery continue? - Steve Bartlett
So, 2009 – how has it been for you so far? Pretty tough but not as bad as expected is probably the answer you’ll get from a typical retailer. For most, sales have held-up remarkably well. Our High Street Sales Tracker of mid-market retailers shows that on a like-for-like basis, which strips out gains from new floor space, sales are marginally up on the year.
This same picture has also been mirrored by the official statistics, which are well ahead of where we thought they would be at the turn of the year. It would seem concerns about the weak economy, job cuts and an uncertain financial future are not really keeping people away from the shops.
However, despite this better trading picture, retailers are remaining cautious. Many are concerned that as currency hedges run out during the autumn, higher import costs will have to be passed onto customers. By this time the impact of lower interest rates on consumers will be starting to wear-off, while unemployment concerns are also likely to be significantly higher. Retailers are therefore likely to be hit by a double whammy of higher costs and potentially lower demand in the coming months. When you also consider that last year’s cut in VAT is likely to be reversed at some point, you can see why retailers are taking a glass half empty view.
Having said all this there are still positives. Many retailers have responded quickly and effectively to the downturn, addressing costs and adopting innovative promotional strategies. The stronger than expected start to the year means many retailers are approaching the autumn pinch point from a higher than forecast base. Capacity has also come out the market, while property costs are also falling significantly. So those retailers that have adapted to the changing market will be well placed to capitalise on market conditions.
Finally, I would not underestimate just how ingrained shopping has become to most people. Retail therapy is still one of our favourite pastimes, which I can’t see changing even if the recession drags on.
Of course whilst none of this is to deny that conditions will probably become tougher during the autumn, retail is still fundamentally a growth industry that offers lots of opportunities for those able to adapt and change. Until recently almost all of the retail corporate activity has been connected to a “distressed” situation, however we are seeing signs of a change to this. Whilst there will undoubtedly still be further retail failures (and these will present opportunities in themselves), retailers are starting to think about more traditional growth drivers, such as capital raising or M&A. The landscape for this is certainly tougher than it was, but there is evidence that for successful, well positioned retailers, there are opportunities to exploit and deals are being done.
How can BDO help?
Our corporate finance team has in-depth experience and expertise to offer timely and strategic advice tailored to match your evolving business needs. We help to maximise the value of businesses by advising on a range and variety of work including acquisitions, fund raising, flotations and disposals.
For more information please contact Steve Bartlett, Partner, Corporate Finance, or contact your local BDO adviser.