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OPINION

Christmas flopping

Christmas flopping
December 16, 2015
Christmas flopping

Compare two updates this week. Bonmarche (BON) shares fell almost 30 per cent after the plus-sized women's clothes retailer warned that "trading conditions in December, particularly since 'Black Friday' on 27 November, have been very challenging, and have not normalised". Meanwhile, Carpetright (CPR), which all but closes its doors over Christmas, reported like-for-like UK sales growth for the six months to October of 3.7 per cent.

Wage growth in the UK was running at 3 per cent year-on-year in the third quarter, according to official data, even as consumer prices declined. But the consumer confidence implied by such statistics has not really benefited shops: UK retail sales grew by just 0.7 per cent year-on-year in November, according to the latest update from the British Retail Consortium and KPMG, and shrank on a like-for-like basis. Helen Dickinson of the BRC sagely observed that "the conversion of people's higher disposable income into retail sales shouldn't be taken for granted".

Carpetright's buoyant numbers partly reflect a company-specific recovery following a spate of profit warnings. Yet they also fit into a pattern of robust consumer spending on home-related goods - and in traditional bricks-and-mortar shops. Stripping out online sales, furniture and home accessories were the only two retail categories to show growth in November, according to the BRC-KPMG update. Most consumers still want to look at items they will live with before they buy them.

The victims of the current environment are instead grocery and clothing retailers. Even before the Bonmarche update, Clive Black, head of research at Shore Capital, noted an "almost recessionary mood" among some retail executives in these areas, which dominate the listed sector. Fierce competition, resulting in deflation, seems to be the key reason. I have already discussed the deflation woes of Tesco (TSCO), and my colleague Harriet Russell takes this further in this week's sector focus. But the trading conditions facing clothing retailers are almost as fearsome.

Consumer price inflation of 0.1 per cent in November would have been higher but for falling clothing prices - down 0.1 per cent month-on-month. "This is the first fall in [clothing] prices between October and November since official records began in 1996 and follows the largest September to October price increase on record," noted the Office for National Statistics. The general impression is that retailers launched their autumn and winter collections in a fit of optimism only to discount heavily in November.

No doubt they will blame the weather - mild, which discourages winter clothing purchases, and wet, which discourages high-street traffic. This is plausible, although it underlines the fact that retail is an unreliable business to invest in. But there is another explanation: high-street retailers are still struggling to adapt to changing shopping habits.

The number of shoppers who braved the high street in November was 3.4 per cent lower than a year earlier, according to the BRC. Shopping centres are also attracting fewer people, with footfall down 2.8 per cent. The winners in today's environment are e-commerce and - less predictably - retail parks (footfall up 2 per cent). Excluding food, online sales grew 12 per cent year-on-year in November and now account for a full 22.4 per cent of the total. Black Friday only cemented the trend. "Consumers shunned high streets and instead sought to take advantage of online 'Black Friday' promotions and discounts which often ranged across several days," notes Ms Dickinson.

The cliché that retail is a stock-picker's sector has never been truer. For now, the ideal investment seems to be a home goods retailer with a limited high-street presence and strong online and retail-park operations. Long-term IC favourite Dunelm (DNLM) ticks the boxes.