The Beast From the East Shreds the Flimsy Spring Dress
It's snowing outside. Get ready for the flurry of retailer profit warnings.
The so-called "Beast from the East" has sharpened its claws just as consumers are being squeezed by inflation running ahead of wage growth. The wintry blast puts more pressure on all retailers -- and could be the final nail in the coffin for already distressed chains.
Arctic conditions are hardly conducive to a shopping trip, and footfall has slumped. Overall, U.K. retail sales may have been reduced by about 500 million pounds ($688.7 million), according to Richard Hyman, an independent retail analyst.
Temperatures have plunged just as spring fashions have arrived in stores. The impact would have been even bigger if the snow had fallen in a month's time. But clothing retailers still have to sell their garments, and a hiatus now means more stock to shift over the next few months.
Online should have made up some of the demand -- but internet purchases tend to be things consumers need, not simply want. And if deliveries can't get through, that's not much good either.
For Hennes & Mauritz AB and Inditex, the owner of Zara, their pain doesn't stop at the English Channel. Heavy snow has fallen across Europe, so there isn't much room to hope that continental sales can ease the sting. H&M is already suffering from weak demand and a surfeit of stock, and unusually, investors have become more cautious about the Spanish group, primarily because of the strength of the euro.
For businesses that depend on passing trade, the bad British weather is a real headache. Whitbread Plc owned Costa Coffee's sales were hit when wet conditions over Christmas 2015 deterred consumers from venturing to the high street. As for the crowded casual dining market, blizzards make a meal at home more appealing than a night out.
The situation is more mixed for the big supermarkets, Groceries are essential purchases, and consumers tend to panic buy when there's the threat of snow, boosting trade. But once it arrives, the biggest challenge is keeping stocks of bread and milk on shelves. Those with big convenience arms -- Tesco Plc, J Sainsbury Plc and the Co-operative Group Ltd -- should benefit as consumers top up locally.
The bad weather is a blow at any time for shops, but it comes as many British chains are struggling.
This week, Toys R Us Inc.'s U.K. arm collapsed into administration, as did the private equity owned Maplin electronics chain. Carpetright Plc warned on profit and has begun talks with its lenders to ensure it doesn't breach its banking covenants. Meanwhile, shares in Mothercare Plc have sunk to an all-time low, amid concern about the impact of a closing-down sale at Toys R Us. Privately owned New Look Retail Group Ltd and House of Fraser Ltd are seeking rent reductions, and in New Look's case, closing stores.
Of course, some chains will use the conditions as an excuse. Debenhams Plc has form here. In 2013, it warned on profit, blaming snow for weak sales. But trade continued to weaken, even when temperatures rose
It's due to warm up next week, so companies should be able to make up some of the lost trade. But if the freezing conditions continue for much longer, sales might not bounce back so easily.
And there will be another pernicious effect long after the snow has melted -- higher gas bills landing on the doormat could exacerbate the squeeze on incomes.
With inflation set to moderate this year, pressure on both shopper spending power and retailers' margins could well ease.
But things were already poised to get worse before they got better. Thanks to the big freeze, the trough just got that bit deeper.
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