2018 Caps Worst Year in More Than a Decade at U.K. Retailers

(Bloomberg) -- Investors looking for relief from the tumult of global markets may want to avert their eyes from a report showing that by one measure, U.K. retail sales had their worst year in more than a decade.

Sales at U.K. brick-and-mortar retail stores fell 1.9 percent in December on a like-for-like basis, according to a report Saturday from business advisers at BDO LLP. That capped the worst year for monthly sales shrinkage since at least 2006, when the firm began tracking data coming from about 85 British retailers with some 10,000 stores.

As more shoppers head online -- and away from physical sites often locked in expensive leases -- there’s little escape from the traditional British industry’s decline. Even with strong signs emerging from American retailers’ holiday season and some U.K. brands, the report provides scant cheer for storied British companies such as Marks & Spencer Group Plc, Debenhams Plc and Mothercare Plc that are set to publish sales numbers this week.

“The shopping spree retailers were hoping for in December didn’t happen,” said Sophie Michael, BDO’s national head of retail and wholesale. “Shoppers have exercised extreme caution or shopped strategically online, seeking out discounts rather than visiting bricks-and-mortar stores.”

While Next Plc’s sales report on Thursday held some positive signs, much of the strength came from online sales; store revenue declined 9.2 percent in the nine weeks ending Dec. 29. Next does about half its business on the internet, more than double the proportion at competitors like Debenhams and Marks & Spencer.

Observers often look to Next to indicate the sector’s performance and “it never, ever does,” said Richard Hyman, an independent retail analyst.

Non-store like-for-like sales rose 12 percent last month, according to BDO, following a continuing shift to online spending. If shoppers didn’t make it out of the house to do much of their Christmas buying, retailers with a weak web presence will be in trouble.

Online peers aren’t immune to the challenges weighing on the industry: fashion retailer Asos Plc last month said that Christmas shopping got off to a disastrous start. Uncertainty about Brexit negotiations has also taken a toll, as British consumer confidence dropped to its lowest level since 2013.

The FTSE 350 General Retailers Index fell about 30 percent through Friday since the U.K. voted to leave the European Union in June 2016, compared with a 7.9 percent advance for the benchmark FTSE 100 Index during the same period.

Dunelm Group Plc showed that the gloom is not universal, with its shares rising as much as 13 percent early Monday in London after the home-furnishings seller posted a 9 percent increase in second-quarter comparable sales. That lifted other retailers, with Marks & Spencer up 1.3 percent and Debenhams gaining 5.5 percent.

Global market volatility and trade tensions also helped shave the forecast of iPhone maker Apple Inc., sending ripples through markets around the world last week. As consumer confidence remains low, there’s little reason for retailers to expect change in 2019, according to Diane Wehrle, marketing and insights director at retail analysis firm Springboard.

“We don’t anticipate much uplift for bricks and mortar unless something changes,” she said in a phone interview. “It’s the final stage in a long journey toward extinction for some retailers that are out of date.”

To contact the reporters on this story: Lisa Pham in London at lpham14@bloomberg.net;William Mathis in London at wmathis2@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, ;Eric Pfanner at epfanner1@bloomberg.net, John Lauerman, Paul Jarvis

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