Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Brexit is starting to hurt the real economy. That's the message from one of Britain's biggest retailers.

Marks & Spencer, which on Thursday reported its worst trading figures since the depth of the financial crisis, said consumer confidence slid in the run up to the vote, and remains fragile.

Retail Therapy
M&S stock has underperformed rival Next since the Brexit vote
Source: Bloomberg

M&S said most of the 8.9 percent fall in same-store sales of clothing and home goods can be blamed on that fact it cut back on promotions. The weather didn't help much either. And CEO Steve Rowe reckons the environment remains uncertain.

Elsewhere, the signals are mixed. Sales at Dunelm, which sells cheap home furnishings, have climbed since the vote. But billionaire Mike Ashley's Sports Direct expects consumer confidence to wane.

Retailers are right to be cautious. It's likely that shoppers will take fright, particularly if unemployment rises. That's not good news for store groups, who have been struggling to lift sales even when the consumer was feeling relatively flush.

British retailers are also grappling with the weak pound. That's a problem, because they buy the majority of the products they sell from suppliers in China and south Asia, which are paid in dollars. As sterling weakens, those costs go up.

Most retailers hedge their currency exposures, but those hedges will start to run out next year. The impact will come through in either the spring or autumn seasons, depending on how long they have hedged for.

Here Sports Direct looks particularly exposed. It isn't hedged for this fiscal year.

Retailers can try to pass price increases through to shoppers. But with the consumer cautious and hooked on the drug of constant discounts, they're likely to struggle.

They might have a better chance negotiating with suppliers. Not everything depends on the dollar. There are also inputs such as cotton and oil to contend with. And while suppliers are paid in dollars, their own costs are in local currencies, so they may have scope to reduce prices there.

But if that fails, British retailers' margins will suffer. Those with the widest margins at this point will be the best placed.

Margin for Error
Retailers with higher operating margins will be best placed to weather weaker sterling
Source: Bloomberg, company reports

Next is in poll position. Its operating margin was 24 percent in the year to the end of January. That's substantially better than Debenhams's 10 percent and M&S's 13 percent (although the figure for the latter is reduced by its food business, where margins are typically lower).

Primark, owned by Associated British Foods, has historically operated on thin margins, choosing to boost its profits by driving up volumes. But ABF said Primark's operating margin was 12 percent in the third quarter -- putting it closer to Debenhams and M&S. That may give it a little more flexibility.

That leaves Sports Direct as the most vulnerable. Its 13 percent margin looks most at risk given its lack of hedging. The pound slumped to a 31-year low this week and analysts expect sterling to remain at or below $1.30 until the second half of 2017, according to estimates compiled by Bloomberg.

For Sports Direct, that will be an arduous run -- even in the smartest of trainers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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Edward Evans at