October 10, 2024

Flagging Sales in Britain Raise Recession Worries

The retailer, Tesco, warned that profit growth in the coming year would be “minimal” after a disappointing holiday season. The chain, which is the world’s third-largest retailer after Wal-Mart Stores and Carrefour, said it was caught by surprise by consumers’ reluctance to spend and by aggressive price cuts at rivals.

The profit warning shocked some investors used to stellar earnings reports from the company. Tesco shares fell 16 percent in London.

The warning also heightened concerns about profitability in the retail sector in Britain and across Europe as consumers, fearful of rising unemployment and government austerity measures, held back on purchases.

Home Retail, Britain’s largest household goods retailer, warned Thursday of a “significant” cut in its full-year dividend because of a sales slump. Mothercare, a baby clothing retailer; Thorntons, a chocolate maker; and Halfords, the car parts retailer, reported weaker sales figures Thursday and warned of a challenging business environment ahead.

“I’m quite worried about the retail sector and consumer spending,” said David Tinsley, an economist in London for BNP Paribas. He said Britain could already be in the middle of a recession or might be able to just avoid it. “It’s going to be pretty close,” he said.

The retail sector is not the only industry suffering. Royal Bank of Scotland announced a new round of job cuts on Thursday, saying 3,500 positions would be eliminated at its investment banking division over the next three years to reduce costs

Job vacancies in London’s financial industry fell 8 percent last year to less than half of what they were during 2007, according to recruitment firm Morgan McKinley. The firm said that job opportunities might never return to levels before the financial crisis.

Not all British retailers struggled during the holiday season. Tesco’s smaller rival J Sainsbury, which owns the supermarket chain Sainsbury’s, topped some analysts’ expectations with its sales during the holiday period as customers bought more luxury food and discounted goods. Tesco said its own price cuts helped to increase sales volume but failed to lift profit.

“This wasn’t the Christmas that I wanted,” Tesco’s chief executive, Philip Clarke, said in a conference call with analysts. He called the British consumer environment “challenging” and said there were early signs of more cautious behavior emerging in other markets.

David McCarthy, an analyst at Evolution Securities, said Tesco was “performing weakly in a weak industry” and that profitability would be squeezed across the entire sector.

Many retailers were hoping for a busy holiday sales period but instead had to cut prices early and to levels last seen in the aftermath of the 2008 collapse of Lehman Brothers, the British Retail Consortium said this month. About 36 percent of British consumers are spending less on clothing and footwear and 28 percent are spending less on furniture amid concerns about the crisis in the euro zone and rising unemployment, according to the group. About one in five households has had a recent reduction in disposable income as a result of unemployment, less overtime work and loss of bonuses, it said.

Bankruptcies among retailers in Britain rose 11 percent, to 183 companies, last year with 42 businesses running out of money in the final quarter, Deloitte reported Jan. 9. Among the casualties of 2011 were the shoe retailer Barratts, the wine and liquor retailer Oddbins and the women’s clothing chain Jane Norman.

The outdoor clothing chain Blacks Leisure and the lingerie firm La Senza almost collapsed before finding buyers.

Article source: http://www.nytimes.com/2012/01/13/business/global/signs-multiply-of-a-serious-slump-in-britain.html?partner=rss&emc=rss