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Inflation to hit shoppers

John Lewis up pre-Xmas, Next down as rising prices loom

John LewisJohn Lewis, Britain’s biggest department store chain, enjoyed a 36% rise in pre-Christmas sales, boosted by two extra trading days compared to the same period in 2015.

However, the chain saw sales slump by 9.4% in the week ended 31 December. It was closed on Boxing Day while other stores were open.

Its grocery chain Waitrose, saw a repeat pattern with sales up 31.1% in the week before Christmas and down 12.5% in the following week.

Christmas sales at high street retailer Next fell 0.4% against its own expectations of better figures and amid a warning that inflation will hit trade this year.

The company said sales between 1 November and 24 December were down by 0.4%.

Total sales including discounted goods, for the year to date are up 0.4% on last year.  However, full price sales for the year to date are down 1.1% on last year.

It is now guiding that full year group profit will be £792m, which “may increase or decrease” by £7m depending on trade in January.

“The year ahead looks set to be another challenging year; therefore we are preparing the company for tougher times and have set our full price sales budget accordingly,” it said in a trading statement.

“The fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slow-down in spending on clothing and footwear to continue into next year.”

NextIt said sales may be depressed by a further squeeze in general spending as inflation begins to erode real earnings growth and by the devaluation of the pound.

“We expect prices on like-for-like garments to rise, but by no more than 5%.  We expect that this will depress sales revenue by around 0.5%.”

It expects sales in the year to January 2018 to be between -4.5% and +1.5%.

“The mid-point of this range is -1.5%, which is marginally worse than the current year’s performance,” it said.

Overseas sales will be boosted by the devaluation of the pound which means total reported full price sales should be around 1% higher.

“In the year ahead we face a number of inflationary pressures in our cost base.  The National Living Wage, the national business rates revaluation, Apprenticeship Levy and energy taxes will add around £13m to our cost base.

“General inflation in wages and other non-product costs look set to increase by an additional £6m.  In addition we intend to add around £10m to our cost base in order to improve our website systems and online marketing.

The company intends to return surplus cash to shareholders by way of four quarterly special dividends of 45p each.

The figures coincide with a warning that prices will begin to rise.

The latest BRC/Nielsen ‘Shop Price Index’ shows a fall in prices, but at a slower rate.

David LonsdaleDirector of the Scottish Retail Consortium, David Lonsdale (right), warned that prices were likely to rise as cost pressures mounted.

“Thanks to stiff competition within the industry and the effectiveness of retailers’ in managing costs, Scottish shoppers continue to benefit from falling prices,” he said.

But he said cost pressures are “undoubtedly building”.

This is due to currency movements affecting imported goods in the supply chain “but also frankly from government policy decisions primarily affecting expenditure on property and people.”

He added: “These cost pressures are likely to feed through into retail prices though the timing and extent of any increase will differ from one category and retailer to the next, however value-driven and informed customers mean shopkeepers will have to remain competitive.” 

Helen Dickinson, chief executive, British Retail Consortium, said: “December saw an easing of shop price deflation. Prices were down 1.4% compared to last year, but the majority of the categories we monitor, particularly non-food, saw month-on-month increases in prices, with clothing and footwear seeing month-on-month inflation for the first time in nearly two years.

“We’ve said for some time that we expect to see underlying inflationary pressures, notably from the post-referendum fall in the value of the pound, feed through into shop prices.

“It’s too early to confirm that this is what we’re seeing in December’s figures: timings of seasonal discounts can cause monthly fluctuations at this time of year and retailers have continued to find ways to mitigate the impact on consumers.

“However, we expect the general trend in inflation to be upwards over 2017. The magnitude of the exchange rate movement and commodity price rises combined with the increasing costs of doing business means that retailers will have little choice other than to pass on some of these rising costs into prices but effect will be lessened by the intensity of competition.”

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