This holiday season is a make-or-break for some of the U.K.’s major retail chains even as the entire industry in the U.K. would wan to forget the year, say investors.
Fashion retailer New Look Retail Group Ltd and department-store operators Debenhams Plc and House of Fraser Ltd. are among those retailers.
There were discounts of as much as 50 per cent at all the three retailers despite the promotions for Black Friday were distributed for over two weeks in November.
According to researcher Springboard, there had been a fall o f 9.1 per cent in the number of shoppers at British retail stores due to snowfall during the weekend of Dec. 9-10. Retailers are hopeful that this would lead to a glut of pent up demand in the market prior to Christmas.
Additionally, there has been strain in the industry due to rising labor costs and sourcing costs due to weakness in pound due to Brexit and a drop in the disposable incomes of Britons. There was subdued consumer behavior which is not expected to alter during the peak shopping season, believes Next Plc Chief Executive Officer Simon Wolfson.
The physical stores have been further hit by a rise in e-commerce. This trend was the driving force of the acquisition of shopping-center operator Westfield Corp. by Unibail-Rodamco SE for $15.8 billion.
“Historically Christmas trading has kept the wolf from the door for a lot of struggling retailers, but I’m not sure that’s going to be the case this time around,” independent analyst Richard Hyman said by phone. “The golden quarter isn’t looking so golden.”
“Debenhams has operating profits only just ahead of their rents, rates and utility bills. It’s a race between them and House of Fraser as to who will go down first,” according to Crispin Odey, whose hedge fund Odey Asset Management holds a short position worth 21 million pounds, equivalent to 5.1 percent of the company’s outstanding shares. “The real trouble will come in January.”
For Debenhams, an acquisition bid is most likely because of the level of fall of its shares, believes Investec analyst Kate Calvert, who changed Debenhams to a hold rating this week.
On December 8, the ratings for House of Fraser was reduced by to Caa1 by Moody’s Investors Service. Analysts say that there are chances of the retailer breaching its debt covenants. The company operates 59 department stores in the U.K.
In a November report, House of Fraser was listed among a potential “increased number of insolvencies and restructurings in the retail sector in the near future” by law firm Orrick, which specializes in debt restructuring.
(Adapted from Bloomberg)