Sales on the high street AND online are down due to cost-of-living squeeze

High street bosses are bracing for a series of casualties this Christmas as households battle rising food and energy bills. Industry insiders and store executives told The Mail on Sunday that chains have been caught between rapidly rising costs and weaker-than-expected demand.

Clothing retailers are said to be particularly exposed to cuts after warmer-than-usual weather has caused winter ranges to pile up in warehouses.

Veteran retail consultant Richard Hyman said: ‘There are a lot of vulnerable retailers out there, to be sure.

Cold weather: M&S cut prices on coats, in a circle, as temperatures dropped

“I think there’s going to be a lot of excess inventory coming into the New Year, a lot of discounting, and we’ll see some write-offs.”

Many stores have enjoyed a recovery this year after being forced to close during the pandemic. Shoppers have flocked to city centers and retail parks, giving stores a much-needed boost. But the mood is fragile. Hyman said: ‘People’s spending power is reduced month by month. Something has to give. Traditionally, a lot of money is spent on purchases that people don’t necessarily need, especially clothes.

Christmas will not be cancelled, that’s absolutely certain. But I think it will be an edited Christmas. Let’s see a squeeze.

Last week, deeply discounted Black Friday events proved to be a wet squib with the number of shoppers in the early hours of the day down 22 percent compared to pre-pandemic levels. One retail executive said: ‘You can’t double your home energy bills and add 15 or 20 per cent to your grocery bills and expect consumers to keep spending like nothing happened. The next few weeks are going to be very unforgiving.

It added that the rising cost of labor, the biggest cost of retail, as well as energy, raw materials and transportation, was a “perfect storm” of inflation-driven cost increases. He said the speed of the increases in recent months had been a “nightmare.”

According to official forecasts, disposable income is expected to fall by 4.3% in the year to April 2023.

Bosses are also concerned that rail strikes in the run-up to Christmas could ruin days, especially journeys to big city centers like London.

Fall has already ushered in the collapse of clothing chain Joules and online furniture retailer Made.com. City analysts believe even Main Street stalwarts are feeling the pinch.

Tony Shiret of broker Panmure said it has cut its buy rating on the apparel sector, including Next.

He said a 20 percent sale on all coats and boots at Marks & Spencer, just as the cooler weather arrived, was evidence that demand for winter clothing had been lackluster. The sale launched at an “inopportune time” for the retailer just as more seasonal weather has arrived in the last fortnight.

He said it suggests that unsold stock levels in the business “have become critical” and that the chain needed to sell large quantities at a reduced price.

The Met Office said average temperatures in October were nearly 2C above the long-term average. The maximum recorded for the month was 22.9 °C at Kew Gardens on October 29. The temperate weather continued through November. In a report sent to investors on fashion retailers, Shiret said; ‘Our information is that [clothing] the distribution centers are full.’ Online retailers Boohoo and Asos have already shown signs of weakening demand.

A growing number of stores are having problems with their trade credit insurance, which is the coverage given to their suppliers. The withdrawal of coverage may be an indication that finances are under pressure.

Earlier this month, it was reported that both Boohoo and Asos had seen their business insurance cut by Allianz Trade.

Allianz also dropped its coverage for suppliers to Wilko, the 400-store hardware business formerly known as Wilkinsons.

Last week it emerged that Wilko was in talks about a £30m emergency loan and has hired advisers from Teneo to help him sort out his finances.

Fashion chain Superdry said last month it must refinance a bank loan by January. Reports suggest Elliott Advisors-backed Bantry Bay may close the gap.

A retail manager added that value chains operating in city centers, including those in New Look and Matalan, were more vulnerable than others.

He said he hoped Primark would be the exception.

“If you ask me which ones I think will do well in all of this, I would say Primark, Aldi, Lidl and probably Next,” he said.

Other supermarkets, including Tesco, are expected to be better protected from cuts, despite mounting evidence that shoppers are being more careful, for example, replacing branded products with retailers’ own-label ranges.

Christmas celebrations have been disrupted by two years of Covid restrictions.

Hyman said: ‘I think people still want to entertain this Christmas. They certainly aren’t going to cancel that even though they can spend more shrewdly.