FTSE 350: General retailers to feel the burn

GfK’s long-running Consumer Confidence Index decreased by one point to -13 in December, compared with -7 last January and didn’t record a single positive score in between. This marks two years of negative consumer confidence scores in the UK, likely to be the result of several factors: political uncertainty, global security threats, wage stagnation, price inflation and rising interest rates. It’s left many a UK household under pressure, and discretionary purchases are bound to suffer.

But the first few Christmas trading updates have provided insight into the volatility of recent shopping trends. A solid Christmas performance from B&M European Value Retail (BME) suggests that the discount end of the market continues to gain traction, particularly when it comes to grocery and fast-moving consumer product lines. But Card Factory (CARD) – supposedly another favourite for those shoppers on a budget and typically a strong performer over the festive period – shocked analysts with poor card sales in the run up to Christmas. This is putting further stress on company margins, which had already started to buckle under the pressure of adverse foreign exchange rates, rate rises and wage hikes.

Christmas numbers from other retail stalwarts such as WH Smith (SMWH) and Dixons Carphone (DC.) were not available before publication of this article, but suffice to say footfall trends on the UK high street are in a sorry state. The latest figures from the BRC Springboard Footfall and Vacancies monitor show that December footfall decreased sharply by 3.5 per cent year on year, the biggest decline since March 2013 when it dropped by 5.2 per cent. Helen Dickinson, chief executive of the British Retail Consortium, said this sharp drop “underlines how shopping is being transformed by the shift to online”. She added that shoppers used to exclusively visit physical stores to ensure stockings were filled for Christmas, but “improved delivery options by both purely digital retailers and those with stores and an online offer” meant many purchases of last-minute gifts moved online. However, Ms Dickinson admitted “the squeeze on discretionary spending” also contributed to the decline in footfall.

Although footfall numbers are faring slightly better across retail parks as shoppers order online and collect in store, this hasn’t been a strategy that has paid off for the likes of Pets at Home (PETS). Although the nation’s obsession continues with keeping domestic animals, pet owners are more likely to log on to Amazon (US:AMZ) or Ocado (OCDO) and have pet supplies delivered alongside their weekly groceries. The group’s shares lost 25 per cent of their value last year in the wake of several disappointing news updates. Unsurprisingly, margins have been the real issue here, particularly as the company tries to spend its way out of trouble. The group is also in need of some consistent management in 2018. Previous chief executive Nick Wood quit unexpectedly in early 2016 to be succeeded by Ian Kellet – who notified the board of his intention to step down by the end of May this year at the time of interim results last November.

The final word goes to the motor retailers. The past year was difficult, to say the least, and production estimates are being slashed for the year ahead.  The Society of Motor Manufacturers and Traders (SMMT) predicted on Friday that new car sales would decline 5 to 7 per cent this year, compared with last year. New car sales fell 5.7 per cent in 2017 — the first fall in annual sales since 2011. The public backlash against diesel vehicles and lack of clarity over potential tariff arrangements for importers post-Brexit are also hurting estimates. Within the FTSE 350 group of companies, only Inchcape (INCH) stands alone. The global car retailer and distributor is so international there’s an argument to say its insulated from any one-market decline. And it faces little threat from fellow 350 constituent Auto Trader (AUTO), which is an entirely different business model.