DE4CC0DE-5FC3-4494-BCBF-4D50B00366B5
Retail

You Won't Believe It. U.K. Retailers Have Pricing Power: Gadfly

By Steve Wynne-Jones
Share this article
You Won't Believe It. U.K. Retailers Have Pricing Power: Gadfly

The biggest increase in clothing prices on record is all down to the slump in sterling after the Brexit vote.

That's the obvious conclusion to draw from the Office for National Statistics's report that clothing and footwear inflation picked up to 4.6 percent in in August. But it's not quite right. Because retailers actually have more pricing power than you think -- but only when they get their fashion just right and the weather's in their favor.

There is no denying that the fall in the value of the pound against the dollar since the referendum -- it was down more that 18 percent in the first quarter -- is a factor. Next Plc said on Thursday that prices in the 2017 spring/summer season rose by 4 percent, and had a similar gain for the autumn/winter ranges hitting the shops now, reflecting the devaluation of sterling.

Markdowns

But it's not the whole story. Lower markdowns are also in play, and the ONS did point this out. But, why are their fewer markdowns? While some of that could be down to retailers wanting to preserve their margins in the face of higher buying costs, there's something more going on.

The twin effects of the recession and the rise of online shopping has fostered a "see now, buy now" attitude among consumers. They no longer stock up on the clothing items they might need at the start of the season. Instead, they hold off until the sun shines and they need a summer dress or temperatures drop and they must replace that three-year-old coat.

ADVERTISEMENT

That makes demand a lot more volatile. When conditions are right -- sun in early summer, plummeting temperatures in August and September -- shoppers will buy. And that is what has been happening.

Good Conditions

Such perfect conditions mean retailers have less excess stock that they need to clear at a discount. There are just fewer floaty floral dresses left on the rails at the end of the season that need to be shifted.

Primark, the value retailer owned by Associated British Foods Plc, cleared its summer stock by the end of July. Consequently, ABF raised its expectation for Primark's margin in the financial year just ended. Marks and Spencer Group Plc, Britain's biggest clothing retailer by value, has made reining in discounting a strategic priority, and it has been cutting back on promotional events.

The question is whether this golden period will last.

ADVERTISEMENT

More than a year on from Brexit, retailers believe inflation pressure from the weaker pound will soon begin to ease.

But if stores are able to get customers the styles they want, when they want them, clothing price inflation could prove a little stickier. Conditions right now -- cool clear days -- are ideal for shopping.

That's not to say that fashion retailers are headed for an easy life. As anyone who watches the British weather knows, there is no guarantee such perfect conditions will continue. And, consumers have become used to buying at a discount. The next few months will include Black Friday at the end of November, which has become as much of a frenzy in the U.K. as the U.S.

Meanwhile, recent research from UBS found that the appetite for new clothes among consumers remains week -- only 2 percent surveyed expected to spend more in the coming year.

ADVERTISEMENT

But if the weather were to remain favorable for retailers, or store groups do manage to hold their prices as they annualize last year's markdowns, it will delight their investors. It also suggests that the Bank of England may have to account for a bit more pricing power at British shops.

Retailers' margins have been under pressure ever since the vote in June last year. If they can hold their nerve on discounting, that might help protect them from the storm.

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

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.