© Stocksak. FILEPHOTO: Christmas lights are displayed along Oxford Street in London, Britain, November 20, 2021. REUTERS/Toby Melville
LONDON (Stocksak), -The cost of living crisis has strained consumers and reduced disposable incomes. Therefore, European retailers are unlikely to be able to take advantage of the Christmas shopping period. They will sell anything from handbags to running sneakers.
Amazon.com Inc. (NASDAQ:) Thursday provided a clear indicator of future trends in this holiday season. This is traditionally a high-point for the retail sector. The company forecasted a slowdown to sales growth for the period. It also warned that inflation-wary consumers would have less money to buy.
Even Europe’s biggest names warn of difficult months ahead, and investors have punished them accordingly.
German sportswear company Adidas (OTC:) has slashed its full-year guidance, while world No.2 fashion retailer H&M has launched a 2 billion Swedish crown ($177 million) cost-saving drive.
ASOS (LON 🙂 suffered a staggering 90% drop in full-year profits from pandemic highs. This year, its shares were the second worst performing among the top 350 UK listed companies. It has also lost two thirds its market capitalisation.
Reckitt Benckiser (NYSE:) is another company that produces everyday consumer staples such as Durex condoms and Dettol cleaning product. Both companies have warned about consumer pressure.
WORST TO COME
Stock markets: The European retail sector has suffered from Amazon’s gloomy Christmas forecast. It has lost 40% of its value this year, more than twice as much as the wider regional share index.
JPMorgan (NYSE;) and other strategists believe that the worst is yet ahead for both retailers and consumers.
“Consumers are under a lot pressure and are going down some of their discretionary spending while costs for retailers go up,” Ciaran Callaghan, head European equity research at Amundi Europe’s largest asset manager, stated.
Callaghan mentioned the rise in mortgages, other bills, and higher prices for raw materials like cotton, which are driving up retail’s costs. Analysts and strategists predict that retailers’ margins will be squeezed well into next season due to rising costs and weakening currencies.
Eurostat data show that this year’s increase in costs has been more than 40% due to higher energy bills, wages, and increased freight and fabric prices.
Weaker currencies, the euro and the pounds are down 12% and 14% respectively against the U.S. dollars this year. This has also made goods more expensive in the import-heavy retail sector.
A number of companies announced that they plan to hire temporary Christmas staff in advance of the holiday season. Boots, John Lewis and other British retailers have each stated they would hire 10,000 people. In tight job markets, where there is strong competition for staff, wages are also increasing.
Some companies have been able to pass higher costs onto customers even though demand is declining.
IKEA is the world’s largest home furnishing company. It reported record-breaking annual sales, as price increases and easing pandemic effects outweighed supply shortages, weakening consumers confidence, and its exit Russia.
Other companies may have to shift their unsold products at a lower price if they are facing high inventories.
“A lot of these retailers have high inventory levels. To clear that, you would expect more promotions and discounts. Amundi’s Callaghan explained that this will not be good for the gross profits.
Tradition strategist Stephane Ekolo said that the trend of high inventories is likely to continue next year. He said, “We will see more and more obvious signs of demand erosion.”
According to Kantar, half of Britons intend to spend less Christmas this year. Market researcher Kantar found that half of Britons have already cut back on their spending, with confidence at an all-time low in the face inflation of 10% and a chaotic political environment.
Eurostat reports that retail trade in non-food items fell by 3% in August in the euro area, where inflation is similar.
Amazon.com indicated that European consumers were spending less than their American counterparts.
“It is hard for us to be positive on retail spending with consumer confidence still at record low levels and the cost-of living crisis firmly hitting everyone,” said Trevor Green of UK Equities. Aviva (LON:) Investors.
Green said that his exposure to retailers was very selective throughout the year. He also stated that he prefers discount retailers because they could benefit from lower consumer trading.