Urge to splurge

Never Mind Brexit, Just Spend

With more inflation on the way, don't bet on that continuing.
Jason Alden/Bloomberg
KINGFISHER PLC
-2.90
As of 7:30 AM EDT
306.50 GBp
DIXONS CARPHONE PLC
-4.50
As of 7:26 AM EDT
203.70 GBp

Brexit is driving up prices and there's an election around the corner, but Britons are still hitting the shops, to judge by a raft of reports from retailers.

Marks & Spencer Group Plc said Wednesday that while its same-store clothing and home-furnishing sales fell more than estimated in the three months through April 1, full-price sales were up, and there are signs that its market share in clothing has pulled out of a decline.

Forgettable Quarter

M&S's same-store clothing sales turned negative again as it cut the number of promotions

Source: Company reports, Bloomberg Intelligence

Dixons Carphone Plc saw the mobile-phone market as challenging, but electricals appeared to be holding up. Even Kingfisher Plc, which pointed to weak sales in France, said same store-sales at its B&Q chain in the U.K. were broadly stable. Screwfix, which supplies mainly the building trade, continued to post strong growth.

The rosier picture owes something to recent -- sporadic -- warm weather. That's good for sales of home-improvement products (Kingfisher said same store-sales of B&Q's seasonal products were up 17.5 percent in the three months through April) and clothing. Even food benefits, because of barbecues and picnics.

Warm weather's not so good for electrical and home-furnishing sales. A blisteringly hot day has families heading for the beach, not to the out-of-town retail park.

It would be tempting to shrug off lingering doubts about the British consumer, based on the latest numbers. That would be misguided.

Squeeze Coming

Higher inflation is starting to eat into consumers' spending power

Source: Asda, Centre for Economic and Business Resarch

Note: The Asda income tracker measures how much families have left to spend each week after paying for essentials, such as electricity, fuel, food and housing.

After all, nothing's really changed much yet. There's a bit of inflation coming through, and more to come: M&S said cost pressures from the pound's depreciation would be worse in the second half of the year as its hedging positions unwind.

Steve Rowe, chief executive officer of M&S, said consumer confidence remained "fragile." Seb James, the Dixons Carphone CEO, says the consumer is "sort of OK for now," but the company is alert to any signs of change.

Retailers are right to be cautious. Spending power is likely to be squeezed by prices running ahead of wage growth. When consumers have to spend more on what they need, there's less left over for what they want.

In this environment, big-ticket items are most at risk. Those purchases can be delayed until people feel better off. Hence the profit warning from Topps Tiles Plc earlier this week. Elsewhere, retailers say furniture sales have been hit by a reluctance to spend and a slowdown in the housing market.

And there's a new risk: That some consumers will shun malls after the terrorist attack in Manchester.

Not Just Any Bounce

Shares in M&S have recovered all their post-Brexit losses

Source: Bloomberg

Retail stocks were battered after the EU referendum last June. Some -- such as M&S, which touched a 12-month high Wednesday -- have bounced back. The likes of Next Plc, Dixons and Kingfisher remain below their pre-vote levels, however.

The consumer has clearly held up better than expected so far. There's no guarantee that will continue.

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

    To contact the author of this story:
    Andrea Felsted in London at afelsted@bloomberg.net

    To contact the editor responsible for this story:
    Paul Sillitoe at psillitoe@bloomberg.net

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