UK Chancellor Rachel Reeves has unveiled her latest budget — or the Spring Statement as it’s officially known — and while she stuck to earlier promises not to increase taxes on working people, there was little good news to be had.
Reuters
For a start, it looks like the economy will remain sluggish and that’s likely to depressed consumer spending. Reeves said this year’s growth estimate for the UK economy has been halved to 1% by the Office for Budget Responsibility (OBR).
And while earlier news on Wednesday about inflation was encouraging, it remains above what the OBR had predicted back in the autumn, although Reeves said it should be on target to reach the desired 2% by 2027. That’s down from a peak of 11% that it reached under the last government.
Much of the heavy lifting in terms of big announcements affecting fashion and retail was done in the Autumn Budget so there were few surprises this time. There was also little said about issues that directly affect the fashion and retail sectors. There was no mention of that big bugbear for the industry, business rates, nor of any intention to restore tax-free shopping for tourists.
The Autumn Budget had said small retail businesses will receive a 40% relief on business rates with the current 75% discount expiring next month.
The Chancellor clearly has little wiggle room and re-emphasised that “the global economy has become more uncertain”. This has impacted the UK economy but she said that the country’s “fiscal rules are non-negotiable. They are the embodiment of this government’s unwavering commitment to bring stability to our economy”. That contrasts with some other countries, such as Germany for instance, where certain rules have been torn up in the current circumstances.
Reeves did announce “increasing capital spending by an average of £2 billion per year compared to the Autumn to drive growth in our economy and deliver in full our vital commitments on defence” but said “overall, day-to-day spending will be reduced by £6.1 billion by 2029-30 and it will now grow by an average of 1.2% a year above inflation compared to 1.3% in the Autumn”.
There are cuts being made to welfare spending that the OBR said will save £4.8 billion and that will affect the spending power of a large number of people in lower income groups.
Importantly though, despite the general gloom, Reeves added: “I am pleased that the OBR confirm today that Real Household Disposable Income will now grow this year at almost twice the rate expected in the autumn. And living standards will rise twice as fast this parliament compared to the last.”
And the industry reaction? Helen Dickinson, chief executive of the British Retail Consortium, repeated her concerns about tax-raising policies that were announced back in the autumn and also said: “We welcome the Chancellor’s commitment to ‘drive growth in the economy’ and the retail industry is keen to play its part in this mission. As the Chancellor aims to drive down the number of those who are ‘economically inactive’, there is a need for better routes back into work for those that want or need it after a period of inactivity. The retail industry provides a perfect solution. It is filled with people joining and returning to the workforce. It offers local, flexible jobs, often requiring few qualifications, and part-time jobs that allow people to find their feet, work as much or as little as they are able, and balance work with other important life commitments.
“But the costs from the Budget, and uncertainty about how the Employment Rights Bill and new business rates policy will be implemented, mean it will be much harder for retailers to keep creating these kinds of jobs. So the government should avoid unintended consequences and provide clarity about the implementation of these policies as soon as possible.”
And Dee Corsi, head of the New west End Company, added: “Today’s Spring Statement underscores the harsh reality; that the UK’s economic outlook remains challenging and the support many businesses urgently need is still missing.While we welcome government action to support growth through initiatives like the recent Planning and Infrastructure Bill, for businesses on flagship high streets like those we represent in the West End, there’s an urgent need for more holistic policies to reduce the burdens they face.
“Key to this is the looming hike in business rates, which is a major barrier to the government’s growth agenda, threatening to hit retail, hospitality, and leisure businesses hardest, with potentially devastating consequences. Just as important is the continued absence of tax-free shopping, which cost West End businesses £640m last year, hampering the UK’s global competitiveness and stalling any growth potential.
“We urge the Government to reconsider their proposed reforms [in order] to protect businesses on flagship UK high streets, attract inward investment, and support national and local growth.”
With Christmas, Valentine’s, Mother’s Day and Eid al-Fitr now in (or almost in) the rearview mirror, the next big spending season in the UK is Easter and GlobalData believes Britain will spend £2.3 billion on celebrating it this year.
Photo: Pexels
That’s based on its research that shows over 40% of UK Easter shoppers have reported that they intend to spend more this year. And with Easter falling on 20 April, three weeks later than last year, retailers should prepare for more outdoor celebrations than last year, even though it looks like the current spell of sunny weather might not last into the four-day weekend.
The analytics company said shoppers are planning to spend an average of £124.75, which is £12.35 more than last year. Food & drink and gifting are expected to dominate spending, accounting for over 70% of shoppers’ Easter budgets.
Unfortunately, it didn’t break down its prediction for gifting spend. But it said that purchases of luxury Easter eggs will boost gifting sales, with 46% of Easter gifting shoppers planning to buy these items this year.
Aliyah Siddika, associate retail analyst at at GlobalData, said the appeal of luxury Easter eggs really does seem to be growing and called out M&S as one retailer making the most of them.
And of course, one key point to remember is that such items tend to be bought in-store more than online and getting consumers into shops is the battle almost won when it comes to getting them to look at other products on offer.
It may be part of the giant Capri Holdings that reports results quarterly but we rarely hear about Michael Kors’ specific UK performance so the filing of its accounts for the year to March 2024 is certainly illuminating.
Turnover dropped to £70.85 million from £77.17 million and gross profit fell to £23 million from £28.6 million. Operating profit narrowed sharply to £4.96 million from £31.6 million but profit before tax increased to £61.18 million from £40.45 million. And net profit for the financial year rose to £66 million from £39.7 million.
Of course, this doesn’t represent the full picture for the brand in the UK. The business operates as a limited risk distributor for the parent brand on behalf of the MK group under the intercompany distribution agreement with Michael Kors (Switzerland) GmbH. As such, the company is primarily focused on sales and marketing activities while the commercial risks are borne by the Swiss company. Operating expenses are reimbursed based on a mark-up percentage indexed to net sales. Funding and liquidity needed for operating cost is also provided by the Swiss entity.
The UK firm’s drop in revenue came as the cost of living crisis impacted consumer enthusiasm for spending. The company also focused on store consolidation. It planned the shuttering of its concession in London’s Harvey Nichols as well as shops in Newcastle, Milton Keynes and Manchester to take place in the current financial year, as well as closing its Regent Street pop-up while waiting for its relocation to new nearby premises. Its new flagship is planned to open this summer.
As a result, it expects sales for the current year (FY25) to fall by 20%. Additionally, prices are expected to come down in the foreseeable future “in order to better meet consumers’ demand and counter competitors’ strategies on the market”.
The company said that at the same time as it’s consolidating its retail network it has been expanding its e-commerce business and both of these activities will continue in the future with a focus on driving profitability.
The business continues to be a profitable one in Britain even though the company expects consumer spending to carry on being impacted by general macro economic conditions.
The results came several months after fellow Capri holdings business Versace UK had filed its figures for the same period and it too saw turnover falling, in this case from £23.8 million to £19.2 million. Its profit before tax narrowed to just under £113,000 from almost £315,000 although the fall in net profit was smaller. The figure dropped to £382,397 from £398,777.
Rixo’s accounts for the year to last June have just been filed and they show an interruption to the buoyant sales performance it had seen in the previous financial year.
Rixo
For 2023/24, revenue dipped to £18.7 million from £19 million in what the company said was an “uncertain market with subdued consumer spending in a period of difficult trading conditions”.
In the 2022/23 year, the retailer had seen sales growth almost in double digits. Admittedly, it was the first full year without a Covid impact but a sales rise of 9.1% was still impressive.
Gross profit this time dropped to £13.8 million from £14 million and operating profit was down to just over £303,000 from £2.3 million a year earlier. Profit before tax also dropped sharply to £391,000 from £2.3 million and net income for the year was just £251,000, down from £1.8 million.
The company’s administrative expenses also increased from £9.2 million in the previous financial year to £11.2 million this time.
But the fact that profit fell and its admin expenses jumped sharply is a reflection of the company’s investment in future growth. In the year, it said it continued to build brand awareness by investment in digital and brand marketing alongside opening stores. And that’s what drove the short-term reduction in its profits.
Rixo, which celebrates his 10th anniversary this year has built a strong vintage-inspired contemporary women’s world business selling through both wholesale and its own retail stores plus its webstore.
The company, which recently entered homewares, said it has extended the lease on its Marylebone High Street Store but took the decision to close it temporarily to undertake an extensive refurbishment with the goal of enhancing the in-store experience for its customers. That’s an important location and the closure would also have acted as a sales suppressor.
It’s also continuing to focus on its business beyond those who can get to its London stores and that includes investing in its online platform and in wholesale. It has set up subsidiaries in the US and in Ireland to open new stores and develop the wholesale operations further. During the year a store was opened in New York as part of this investment plan and only last month it signed a lease for a unit in Ireland’s Kildare Village.
Profits at the business had fallen in the 202/23 year too — despite the strong sales jump — and for the same reason as this time with the company investing heavily in the growth that should set it up for stronger profits several years down the line. Those investments had included opening stores on London’s King’s Road in Chelsea and on Carnaby Street in the West End.
Entertainment8 years ago