• Brexit, cold weather add to challenges for struggling sector
  • Other retailers might follow collapses of BHS and Austin Reed

Whether you’re selling clothes or baked beans, U.K. retailing is a tough place to be right now.

Figures released Wednesday by two of the country’s pre-eminent merchants illustrated the extent of the difficulties. Apparel retailer Next Plc cut its sales outlook for the second time in six weeks, while grocer J Sainsbury Plc said it sees no let-up in the competition and deflation that have characterized the supermarket industry in recent years.

There’s trouble almost everywhere you look. In the short term, the upcoming European Union referendum and cool spring weather are causing consumers to defer purchases. In the longer term, retailers face the prospect of rising costs after the introduction of the minimum living wage, at a time when competition has never been more intense.

“Concerns around the Brexit, a slowing labor market and lackluster wage growth are weighing on the minds of consumers,” said Richard Lim, chief executive officer of consultant Retail Economics.

The industry’s difficulties are taxing investors. After a 32 percent drop this year, Next’s forecast cut was greeted by a gain in the shares, with signs of improving business in recent days providing crumbs of comfort. Sainsbury reported full-year profit that beat estimates, yet its shares slid as monthly figures from researcher Kantar Worldpanel showed the supermarket’s sales fell for the first time since July.

“Retailers are quite right to be worried about things,” said Nick Bubb, an independent retail analyst in London. “The economic recovery has been remarkably slow and feeble.”

Even though Next said rising temperatures have led to a “significant improvement” in sales over the past few days, it remains less than optimistic. The poor performance of the last six weeks “may be indicative of weaker underlying demand for clothing and a potentially wider slowdown in consumer spending,” it said. Chief Executive Officer Simon Wolfson has equated the environment to “walking up the down escalator.”

For supermarkets, deflation and the discounters are the big concerns. Sales declined at all four of the U.K.’s largest grocery chains in the 12 weeks to April 24, Kantar said Wednesday. Sainsbury CEO Mike Coupe expects deflation to continue through the summer and beyond, though he is less pessimistic than Next on the outlook for the wider market.

“We haven’t seen evidence of a broader consumer slowdown,” Coupe said.

Still, the recent collapses of chains like BHS Ltd. and Austin Reed illustrate how perilous the environment is. “We’re fearful that the other clothing retailers, in financially precarious positions, may follow,” Lim said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE