UK-listed retailers issued five profit warnings in the third quarter of 2023, taking the sector’s total warnings for the first nine months of the year to 15, according to EY-Parthenon’s latest Profit Warnings report.
The 15 warnings recorded for 2023 so far represent a significant fall of 44% compared to the 27 warnings issued by FTSE Retailers during the same period in 2022.
Similarly, companies in Consumer Staples FTSE sectors – which includes supermarkets and FMCG companies – also saw a year-on-year fall with just five warnings reported in Q3 2023, compared to 12 in the same period last year.
Silvia Rindone, EY UK&I retail lead, said: “Despite the easing of cost and supply headwinds, retailers may find themselves vulnerable as they enter shopping’s ‘golden quarter’ if cost-of-living concerns continue. The EY ITEM Club Autumn Forecast predicts a mixed picture for consumer spending. While falling energy bills and easing food prices supported by falling inflation and real wage rises may help to restore consumer confidence, rising oil prices and a weaker labour market are expected to keep pressure on consumer spending.
“A combination of unpredictable demand and higher interest rates is starting to affect those retailers that didn’t realign their business during the pandemic period. Many retailers took action to weather the supply and cost storm of 2022 and will likely need to again this year, with interest rates plateauing and consumer confidence remaining fragile. Pricing and inventory will once again be key priorities for retailers during this period, with many consumers delaying festive spending in order to better manage their finances and unseasonably warm weather during September affecting buying behaviours in fashion retail.”
NAM Implications:
- Essentially, things are not as bad as 2008 global financial crisis.
- But proactive suppliers constantly monitor their exposure to their customers.
- i.e. divide the amount owed to you by a customer, divide by your pre-tax % net margin and multiply by 100.
- Equals the incremental sales required to recover your losses, should that customer go bust.
- Sobering…?
