Blackfriar: New Year hangover looms for consumers and retailers

It no longer appears to be a question of whether any retailers will go bust in the new year, but just how many will succumb to the severest contraction since the banking crisis of 2008.

This week double glazing firm Safestyle said trading will be very challenging next year and Dixons Carphone has seen half year profits collapse after a difficult mobile phone market hammered the retailer.

Bradford-based Safestyle is in a strong position. It is a market leader and will certainly prosper in the future, but it is feeling the pain.

Hide Ad
Hide Ad

The group said market conditions will continue to be very challenging in 2018.

The firm has blamed a combination of Brexit uncertainty and rising inflation and it now expects 2017 full-year underlying pre-tax profit to come in below market expectations.

Safestyle will ride through the downturn, but its weaker, smaller rivals could well go bust.

Dixons Carphone ​said it has a high cost base and ​it will look at ​its​ store estate.

Hide Ad
Hide Ad

T​he company​ insisted that there are currently “no store restructuring plans”​, but analysts​ said store closures are a possibility.​

Profits at sofa chain DFS ​Furniture have also taken a tumble as consumers rein in spending on big ticket items amid the stalling economy, a fall in confidence and the collapse in the pound.

The Doncaster-based group said pre-tax profits fell 22 per cent to £50m in the year to July 29, while revenue edged up just 0.9​ per cent​ to £762.7​m.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said DFS has been hit by a double whammy of slowing consumer demand and rising costs, stemming from a weaker pound.

Hide Ad
Hide Ad

“Big ticket items like sofas tend to be the first things consumers cut back on when they are feeling the pinch, and a slew of poor sales data from the car industry corroborates that trend. Things don’t look like they are getting much easier either, with DFS expecting weak trading conditions to continue into the next financial year,” said Mr Khalif.

Martin Lane, managing editor of, predicts that shoppers will be tightening their purse strings even further and new furniture will not be at the top their list.

Like Safestyle, DFS is a giant in its field and it will no doubt ride through the tough times. However, DFS chief executive Ian Filby said there is evidence that local independent stores are closing down and it is likely this will accelerate.

One area that does seem inflation proof is food retailing. Shares in Sainsbury’s and Morrisons took a hit this week after lower sales growth, according to Kantar Worldpanel.

Hide Ad
Hide Ad

However, both are seeing growth and it appears that whilst people will cut back on big ticket items, they are determined to put on a festive feast.

Economists believe that households are set on giving their families a good Christmas even if it means paying for it by maxing their credit cards or taking out payday loans.

​​The latest Disposable Income Index published by ISA provider Scottish Friendly ​reveals that 37​ per cent​ of households in Yorkshire feel pressure to create the perfect Christmas.

53​ per cent​ in the region say they make sacrifices to buy Christmas presents and nearly ​a fifth delay paying household bills, take out a personal or payday loan or increase spending on credit cards to meet the cost.

Hide Ad
Hide Ad

76​ per cent​ of households with children say they make a financial sacrifice in order to buy Christmas presents, compared ​with​ just 45​ per cent​ of those without.

The fact that consumers want to celebrate the festive season is good news for grocers, but where will it leave the economy in the new year when they have to repay their debts?

There are also signs that banks are starting to tighten credit lending.

Kantar Worldpanel said that alcohol sales are up £172m on last year. Maybe consumers are drowning their sorrows during the festive party season but what hangover will that leave us with in the New Year?