Britain’s big retailers, including Tesco, Sainsbury’s, M&S and Next, say they are stepping up their drive for efficiency through automation and other measures, to limit the impact of rising costs on the prices they charge their customers.
As the UK economy struggles to grow, the new Labour government’s solution is a hike in employer taxes to raise money for investment in infrastructure and public services, which has prompted criticism from the business community.
Retailers have said the increased social security payments, a rise in the national minimum wage, packaging levies and higher business rates – all coming in April – will cost the sector GBP7 billion ($8.6 billion) a year.
Concerns of the wider economic impact sent retail share prices sharply lower this week and drove up government borrowing costs.
In the retail sector, larger players have more scope to adapt and are cushioned by previous healthy profits, but analysts have said smaller players could find themselves under severe pressure.
Clothing retailer Next said it faced a GBP67 million increase in wage costs in its year to end-January 2026, but still forecast profit growth. It reckons it can offset the higher wage bill with measures including a 1% increase in prices that it said was “unwelcome, but still lower than UK general inflation”. It can also increase operational efficiencies in its warehouses, distribution network and stores, the company said.
CEO Simon Wolfson said more automation was inevitable across the sector. “With any mechanisation project you’re always looking at a pay-back on it – you’re saying ‘what’s the saving versus the cost of the mechanisation, or AI or software’,” he told Reuters. “If the price of the mechanisation doesn’t go up, but the price of the labour it saves does go up, it’s going to mean that more projects can be justified.”
More robots?
Baker and food-to-go chain Greggs last year opened a highly automated production line at its Newcastle, northeast England, site, meaning it can make up to 4 million more steak bakes and other products each week from its current 10 million.
Tesco, Britain’s biggest supermarket, is also increasing automation and will open a robotic chilled distribution centre in Aylesford, southeast England, this year.
No. 2 grocer Sainsbury’s is encouraging more shoppers to use its SmartShop handheld self-scanning technology.
Even though Tesco faces a GBP250 million annual hit from the hike in employer national insurance contributions alone, CEO Ken Murphy said it would cope.
Having navigated the COVID pandemic, supply chain disruption and commodity and energy inflation, he said Tesco was used to dealing with rising costs by finding savings elsewhere.
Finance chief Imran Nawaz said Tesco’s “Save to Invest” programme was on track to deliver GBP500 million of efficiency savings in its year to February 2025, having delivered GBP640 million in 2023/24.
“As we look ahead it’s clear it’s going to be another year where we’ll need to do a stellar job,” Nawaz said, singling out savings from better buying by Tesco’s procurement organisation, in logistics, in freight, and in cutting waste.
Sainsbury’s, facing an additional GBP140 million national insurance headwind, is similarly targeting GBP1 billion of cost savings by March 2027.
Clothing and food retailer M&S, facing GBP120 million of extra wage costs, said it aimed to pass on “as little as possible” to consumers.
One of the biggest names on the British high street, the 141-year-old retailer is in the middle of a successful turnaround programme and believes it can continue to grind out further savings, modernising its distribution and supply chain.
“My summary is: big job, but lots in our control and we’ve got to be ruthlessly focused on costs in these next 12 months,” CEO Stuart Machin said. “We talk a lot about volume growth, because the more we sell, the more that offsets some of these cost pressures.”
But for many smaller players raising prices is the only option. A British Chambers of Commerce survey of 4,800 businesses, mostly with fewer than 250 staff, found 55% planned price increases – potentially hampering the fight to contain inflation and grow the economy.
And for some, more drastic action may be required. British discount retailer Shoe Zone has said the additional costs of the budget meant some stores had become unviable and would be closed.
Deckers Outdoor on Thursday beat third-quarter sales estimates on robust holiday demand for its Hoka running shoes, but an in-line annual forecast caused the footwear maker’s shares to tumble 17% in extended trading.
Ugg
Hoka shoes with their oversized soles have been gaining market share from brands such as Nike in the sportswear category. The brand, which retails for up to $300 in the United States, have also enjoyed full-price sales.
This drove up the company’s third-quarter revenue by 17% to $1.83 billion, beating analysts’ average estimate of $1.73 billion, according to data compiled by LSEG. Deckers also raised its annual net sales forecast for a second time this year.
“The guidance looks pretty conservative and considering the beat, it’s bit of a negative read into the out quarter,” said Drake MacFarlane, analyst at MScience.
The popularity of the Hoka shoes and the success of the company’s Ugg boots and sandals has helped it post double-digit revenue growth for nearly seven quarters.
The company now expects annual net sales to increase about 15% to $4.9 billion, compared with its prior expectation of about 12% growth to $4.8 billion. Analysts estimated an increase of 14.9% to $4.93 billion.
Deckers expects annual earnings per share of $5.75 to $5.80, compared with its prior forecast of $5.15 to $5.25.
Amazon.com is increasing its advertising on billionaire Elon Musk’s social media platform X, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
Reuters
The major shift comes after the e-commerce giant withdrew much of its advertising from the platform more than a year ago due to concerns over hate speech.
In 2023, Apple also pulled all of its advertising from X and has recently been in discussions about testing ads on the platform, the report said.
Several ad agencies, tech and media companies had also suspended advertising on X following Musk’s endorsement of an antisemitic post that falsely accused members of the Jewish community of inciting hatred against white people.
Monthly U.S. ad revenue at social media platform X has declined by at least 55% year-over-year each month since Musk bought the company, formerly known as Twitter, in October 2022. He had acknowledged that an extended boycott by advertisers could bankrupt X.
Musk has become one of the most influential figures following President Donald Trump‘s re-election. He now leads the Department of Government Efficiency, which aims to cut $2 trillion in government spending.
Italian luxury goods group Salvatore Ferragamo said on Thursday its revenue dropped by 4% at constant currencies in the fourth quarter, flagging “encouraging results” from its direct-to-consumer sales which were overall flat in the last three months of the year.
Sales in the North American region, which accounted for 29% of total revenue, were up 6.3% in the quarter. However, the Asia Pacific area saw a 25% drop in revenue at constant exchange rates.
The slowdown in global demand for luxury goods, especially in China, has made the group’s turnaround harder. Overall preliminary revenues reached 1.03 billion euros in 2024, in line with analysts’ estimates, according to an LSEG consensus.
“January shows an acceleration in our DTC channel’s growth, albeit supported by the different timing of the Chinese New Year and a favourable comparison base versus last year”, Chief Executive Marco Gobbetti said in a statement.
Entertainment8 years ago