Fling Open the Doors and the Brits Will Shop
(Bloomberg Opinion) -- Covid-19 has not completely diminished consumer demand. That was the message from U.K. mid-market clothing retailer Next Plc on Wednesday, which revealed surprisingly resilient trading since stores reopened in June.
The performance provides some comfort for the retail sector as well as other businesses such as restaurants, at least for now.
Full-price sales fell 28% year-on-year in the three months to July 25. At the end of April, Next thought the best-case scenario would be a 50% decline in the period. Warehouses were able to get up and running again more quickly than management expected after being shut down in March. That helped online sales rise 9%.
But consumers’ response to shop reopenings in mid-June was also strong. Like-for-like undiscounted sales in stores were down 32% since lockdown was eased, against the 50-60% falls seen in the last week before restrictions were imposed. Next had expected a similarly weak start on reopening.
One of the factors that may have been boosting demand is that Brits are not going on foreign holidays. While this means less need for a new bikini, they are more likely to buy other types of clothing.
With staycations on the rise, there might be an excuse for a new day dress for example. More broadly, consumers may be prepared to go out for meals and day trips.
The danger is that this upswing is short-lived. During lockdown, people saved money by not paying for fares to work and lunches, as well as not going to restaurants or taking weekends away. While childrenswear and leisure wear held up, there was no need to buy a new party dress. There may have been some pent-up demand that has now run its course.
However, Next noted that aside from a surge lasting a couple of days when stores flung open their doors, sales built steadily over the past six weeks.
It’s probably too soon to say that’s a trend. The U.K. furlough scheme starts to taper off in August, and is currently due to finish at the end of October. At those points, the prospect of job losses across the economy increases. Consumers make the biggest changes to their spending when they are made redundant or see their friends and family being laid off.
A second wave of the virus could depress demand once again, particularly if it were accompanied by lockdown measures.
Next therefore remains extremely cautious. Total full-price sales — store and online — in the six weeks since doors opened were down just 8%. Yet the firm’s base-case projection for the second half of the year is for sales to fall by 19%. Another virus flare-up, accompanied by restrictions on people’s movements, could see second-half sales fall by one-third.
For now at least consumers seem to be spending, boding well for the U.K. economy. Struggling retailers, pubs and restaurants need to take all the good news they can get.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
©2020 Bloomberg L.P.