Britons lured to spend by unprecedented discounting at Christmas look set to cut back in the new year as they count the cost of the festive period and worry how Europe's debt crisis will play out. Next, Britain's No 2 clothing retailer, kicked off the post-Christmas reporting season, saying sales and profit growth in its 2012-13 year would be modest, citing concerns over the eurozone debt crisis, a credit squeeze on businesses and rising unemployment. Its shares fell 4 percent.
"My sense is the underlying economic situation is slightly worse than it was in September and that the only thing that has really changed is the situation in Europe," chief executive Simon Wolfson, a prominent supporter of Britain's ruling Conservative Party, told Reuters in an interview.
Next said it would meet profit expectations for its 2011-12 year to end-January after sales rose 3.1 percent in the August 1 to December 24 period, adding it was disappointed with its performance in November and December, blaming unhelpfully warm weather, discounting by rivals and economic headwinds. Although Next has a long-standing policy of not discounting before Christmas, Wolfson said rivals' pre-Christmas activity was "more than I have ever seen before".
A 2.7 percent fall in store sales was offset by a 16.9 percent jump in the firm's Directory home shopping business. Britain's biggest department store chain John Lewis also benefited from a strong internet offer, with a 27.9 percent leap in online sales driving a 9.3 percent rise in total sales over the five weeks to December 31.
Although employee-owned John Lewis might be counted among the Christmas winners, analysts are concerned its profit margins will have been eroded by its guarantee to match competitors' prices. And with shoppers' disposable incomes squeezed by rising prices, muted wages growth and government austerity measures, the store chain is not expecting an easy year.
"Trade in 2012 will undoubtedly be challenging and economic conditions volatile," Managing Director Andy Street said. In the UK, with unemployment at a 17-year high, confidence hit a 34-month low in December. Also on Wednesday, Bank of England data showed British mortgage approvals rose to their highest level in almost two years in November, but net lending sank to its lowest level since June, underscoring a weak outlook for consumer demand.
Hopes were raised, however, that Britain could fend off economic contraction for another quarter by a survey showing that growth in Britain's construction sector unexpectedly picked up in December, while a similar survey on Tuesday indicated manufacturing might be showing signs of stabilising after a two-month decline.
With the retail outlook bleak, hedge funds hunting profits from falling share prices are circling many of Britain's biggest store groups, and fears are growing of a wave of UK retail failures equivalent to that which saw Woolworths go under in 2008-9. A handful of small privately owned retail players went into administration over the Christmas holiday, including toy store Hawkins Bazaar and fashion chain D2 Jeans, after quarterly rent fell due on December 25.
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