Mid-market fashion is predicted to be the most volatile retail sector in the coming year as businesses face higher costs, inflation, and less consumer demand, experts have warned.
Ahead of the first quarter rent day in March, a period in which many struggling retailers have historically tipped into administration, there is a need for landlords to understand the strength of retailer covenants in making lease decisions.
Stephen Springham, head of retail research at Knight Frank, said: “Last year was tough for clothing and I think if there is going to be a fall-out, it will be in clothing. It is the most over- supplied sector and there is not enough growth going round.
“I am, though, positive that we will not lose anything on the same scale as BHS this time around,” he added.
Homeware and fashion retailer Next had a difficult Christmas trading season, posting a 0.4% decline in sales in the fourth quarter to 24 December. It was the first to report its performance for the trading period, and its poor results dragged down share prices across the retail sector.
Retail analyst Nick Bubb said: “Clothing is the area where prices and costs are going up the most, and that’s a recipe for profit pressure. The weaker players will be most at risk.”
The grocery sector performed better than expected, with the big four showing a comeback against budget chains Aldi and Lidl. Marks & Spencer posted its first profit uplift in two years.
Ian Geddes, lead retail partner at Deloitte, said: “Grocery seems to be on an upward curve and the consumer is probably likely to reduce on discretionary items this year and focus on more essentials.
“As we look ahead to 2017 with inflation rising and costs increasing, it is going to be more challenging, so each business is going to have to look at how it delivers its customer experience. Those that do well will be okay, but it will be a much more unforgiving climate for those that do not hit the mark. It will require more focus and rigor than previous years to win the market.”
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