How Rolex and Lidl Go Great Together
All is not well on Britain's high street.
Bellwether Next lowered its sales forecasts for the second time this year last week, and warned that this might not just be down to recent cold weather -- there could be a broader consumer slowdown going on too.
Meanwhile, store chains BHS and Austin Reed have gone into administration.
Nevertheless, the picture of the consumer is puzzling. While Brits are buying groceries at discount supermarkets and seem prepared to wear last year's fashion, they're also snapping up Rolexes and Range Rovers. That's a problem for store groups and investors alike. Turning traditional spending patterns on their head makes it harder to judge where the British consumer's headed next.
Britons have regained spending power over the past year or so as wage growth picked up and inflation cooled.
Yet spending has not been spread evenly. Though demand for Swiss watches has slumped in Hong Kong and China, the British can't get enough of them. Swiss watch exports to the U.K. were up 25.8 percent in December. Overseas travelers might be playing a part, but one jewelry retailer says Rolex timepieces have been flying out of the display cabinets both in and out of London.
Luxury cars are another recent favorite. The 2 percent increase in registrations across all autos manufacturers last month included a 19.8 percent jump in registrations of new Mercedes and a doubling of Jaguar sales.
Yet Britons are happy to scrimp in other ways. They've flocked to the German no-frills supermarkets Aldi and Lidl over the past few years. Although their sales growth has started to slow -- perhaps the result of the traditional supermarkets engaging them in a vicious price war -- a raft of new stores suggests they're still continuing to win customers.
Another area where Britons seem more careful is clothing. The U.K. high street suffered its sharpest drop in sales since the depths of the financial crisis, according to BDO, which tracks the sales of mid-sized retailers with a combined 10,000 stores. Fashion sales dropped 9.2 percent in April, the biggest decline since February 2009.
But the larger point is that consumer-facing businesses have been on a good run, hence the fears about whether it might be coming to an end. From EasyJet to Costa Coffee-owner Whitbread, companies have benefited from an economic recovery and stronger spending power.
And there are even questions about whether high-end cars and watches will be quite so buoyant in future. New car registrations cooled in April, as did Swiss watch imports in March. Whether this is a momentary blip should become clearer once the referendum on EU membership has passed.
Meanwhile, Britain was expected to be warmer than Los Angeles last weekend. Retailers will be hoping that had shoppers reaching for mid-market sausages for the barbecue and new summer dresses. If not, there could be more pain to come.
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