With high street retailer Next Plc (LON:NXT) due to kick off the festive trading updates tomorrow, HSBC Global Research believes Christmas 2017 should benefit from “resilient demand”.
However , the broker thinks the outlook for the UK non-food retail sector “is more challenging with long-term headwinds” seen in 2017.
In a note to clients today, HSBC analysts said that better high street data in October and November was driven by the return of normal seasonal temperatures against a weak comparable base, and by the ‘Black Friday’ sales boost.
They added that this was aided by broad-based price deflation and/or promotions, high disposable incomes, and growth in unsecured credit.
But, looking in to 2017, the analysts said that sterling’s post-Brexit vote weakness and the resulting cost push to inflation will not be easily passed on to the consumer.
They added that this will be even more difficult given an expected slowdown in UK GDP growth and in disposable income growth, with consumer confidence already in decline.
The analysts concluded: “The resulting downward pressure on demand is negative for a retail sector already facing cost pressures from minimum wages and business rates, and consumers starting to see inflationary price increases in petrol.”
Online continues to grow ...
But, they added, while high street sales are set to disappoint, with footfall down 7.3% year-on-year on Boxing Day following around 6% declines on December 23 and 24, online trading should continue to grow.
For Next, the HSBC analysts said they think that, while Christmas sales should be better on weak comparatives, higher temperatures in December and a switch in focus to leisure and Christmas gifts will have done little for wider apparel sales, which are already under pressure
And they added that given Next Directory’s reliance on credit, the deterioration in high street footfall is also a negative leaving risk to the downside for the retailer’s revenue and margin expectations.