Britain's shock vote to leave the European Union probably means a bad knock to consumer confidence. But that doesn't need to feed through to bad vibes for all retailers.
Reality is still sinking in across Britain, which has the equity slump and sinking currency to prove it. Though it will be weeks before any official data on the impact of the referendum on the U.K. economy is published, already some worrying signs for British retail have popped up.
The profit warning from real estate agent Foxtons on Monday is one. There's no doubt Brexit will prompt consumers to postpone the purchase of big-ticket items. That is what happened after the financial crisis, and the trend is likely to be repeated this time round.
But the Foxtons statement isn't just a bad sign for the property market. It also suggests trouble ahead for purchases of the new kitchens, widescreen TVs, carpets and beds that usually accompany house moves.
Carpetright seems already to be feeling the pinch, as its shares are down 9.2 percent in the past two days. If that drop isn't justified, the company would do well to explain why when it publishes its profit statement on Tuesday.
But while Brexit hasn't created a Lehman moment, as Gadfly has argued, you wouldn't know it from a broad look at retailers' share prices. These suggest the industry is back to the darkest days of the financial crisis, when consumers didn't just tighten their purse strings, they snapped them shut. Some of that gloom looks overdone.
Take Dixons Carphone, for example. Its shares are down 22.7 percent in the past two days, outpacing the 5.6 percent decline in the FTSE-100 index. Though consumer electronics retailing has notoriously thin profit margins, the boon for Dixons is that it has some protection from a relatively small exposure to currency fluctuations -- just 10 percent of the costs of the products it buys are in dollars, according to analysts at RBC.
The company will publish profit results for the year ended April 30 on Wednesday. That's also an opportunity for management to explain how the company might be able to weather the storm, and in particular the nosedive in the pound.
Clothing retailers might also be due a second look, including the country's two biggest. Shares in Marks & Spencer are at their lowest level since June 2009, and their 22.1 percent drop in the past two days is the most since July 2008, when a bitter row over its corporate governance and poor sales threatened its future. Next has fallen 20.8 percent in the period.
Apparel was already in a tricky situation even before the referendum, thanks to a broad change in women's spending patterns away from clothing and toward other items and experiences, such as dining out. Compounding this is the far-from-summery weather, and perhaps general malaise connected to the campaigning.
Like many non-food retailers, clothes sellers are exposed to sterling's weakness. Most buy the majority of the goods they source from suppliers in Asia, and pay for them in dollars. The tanking pound means that their costs will go up.
But generally, smaller value items, such as a skirt or handbag, are likely to be less sensitive to economic and political events than purchases costing hundreds, or even thousands of pounds. These sorts of smaller purchases are less vulnerable to news shocks -- a few days of bad headlines may not really affect a person's intent to buy a new pair of trousers.
What's key for them is whether wages keep rising ahead of inflation, and how badly the labor market gets hit. Data showing the impact of the referendum here will take longer to come through.
In the meantime, there will inevitably be some reining in of spending. But it is unlikely to be as extreme as some retail valuations currently suggest.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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