Retailers warned to expect a period of attrition

BABYWEAR group Mothercare, greetings card chain Clinton Cards and jeweller Theo Fennell, yesterday joined the growing chorus of retailers blaming heavy snowfall for dismal Christmas trading.

All three retailers issued profits warnings after struggling in December when heavy snow blanketed much of the country.

Retail expert Dan Butters at business advisers Deloitte said this Christmas is likely to have been the worst for retailers in recent years, as weather, tax rises and faltering consumer confidence undermined trading. He warned worse is to come.

"They are going to have their toughest cycle for a generation coming up," he said. "We're not forecasting any material growth for the next two to three years, and possibly a contraction.

"Generally speaking it will be a period of attrition."

On Wednesday, retailers Next and HMV said heavy snowfall had dented Christmas trading, driving sales steeply down. Fashion chain Next estimated snow wiped 22m from festive sales, driving underlying sales in the 21 weeks to Christmas down 6.1 per cent. HMV issued a profits warning and said sales dived 13.6 per cent in the five weeks ended January 1.

Mothercare yesterday said UK like-for-like sales slid 5.8 per cent in the 12 weeks ended January 1, while total UK sales were down 1.9 per cent. The group's shares slid 5.5 per cent to close at 565p.

The group, which sells mother and baby goods through about 390 Mothercare and Early Learning Centre stores in the UK, plus more than 700 international stores, said the weather hit toy sales in particular, and cut underlying sales by about four per cent.

"Sales were impacted significantly by the adverse winter weather conditions which caused widespread disruption, particularly in our out-of-town stores," said chief executive Ben Gordon. "Direct deliveries were also affected and we cut off Christmas orders early to ensure that customers received their deliveries on time."

The group expects UK gross profit margins to be one per cent lower as a result, and pre-tax profits to miss previous guidance.

Finance director Neil Harrington added: "There is not a structural problem affecting the UK business... If you strip out the snow-affected weeks we have had a pretty decent Christmas."

Clinton Cards said like-for-like sales dropped two per cent in its Clinton Cards shops in the five weeks to January 2 while its Birthdays brand saw a 1.5 per cent fall. This will drive profits "significantly lower than current market expectations".

Chairman Don Lewin, who founded the business in 1968, said the impact of the weather on pre-Christmas sales was "very disappointing" but added that the company believed it had the right strategy to lead a turnaround. The business has 649 UK Clintons stores and 161 outlets under the Birthdays brand.

The shortfall, which will impact on annual results for the year to July 31, adds to the pressure on the chain after its profits slumped from 24m in 2008 to 13m in its last financial year.

Numis analyst Andy Wade slashed his profit forecast by 47 per cent to 7m and its shares fell 10.7 per cent to 25p.

Jewellery group Theo Fennell said the snow kept rich customers away from its stores, as many were unable to get to London, driving like-for-like sales down seven per cent. As a result it said full-year results will miss market expectations.

Mr Butters, who worked on the administration of Woolworths, said retailers were forecast to have a tough Christmas even before the snow arrived. "We were expecting the non-supermarket retailers to have had a pretty tough Christmas, particularly away from the premium end," he said.

He said unlike winter 2008/9 when scores of weak retailers failed, the impact on the high street in 2011 will be "much more widespread", with supermarkets, premium retailers and online traders the rare bright spots.

"The difference between that cycle and this one is we saw the failure of the weakest retailers with structural or systemic problems. They did not fail because of consumer confidence; they failed because of the withdrawal of consumer credit insurance."

However, he said large numbers of business collapses are unlikely as many retailers now have lean costs bases and processes to deal with tough trading.

"I would not be surprised if we did see some failures from some of the smaller or regional players," added the Leeds-based restructuring expert. "But I think the larger retailers have learned to trade through this."

Centre breaks sales barrier

SHOPPERS flocked to McArthurGlen's York Designer Outlet after Christmas, which saw a 16 per cent increase in like-for-like sales.

The group said between Boxing Day and January 2 footfall increased 15 per cent year-on-year, while total sales surged 17 per cent.

Retail experts at PricewaterhouseCoopers this week said shopping centres were expected to benefit from the snow as shoppers tried to hit multiple shops in one trip.

McArthurGlen said the rise was also down to shoppers receiving cash and gift cards, plus trying to beat the VAT increase.

General manager Colin Wilding said: "For the first time ever the centre broke the 3m sales mark, up 17 per cent on the previous record week.

"Monday 27 and Tuesday 28 December were our busiest trading days ever, with shopper numbers at an all-time high for the week, breaking the 100,000 barrier."