By Carla Mozee, MarketWatch
With Black Friday making inroads in the U.K., Brits may have stayed away from the more traditional Boxing Day sales this year — and that could put a wrinkle in the retail sales figures for December, watched closely for what they imply about U.K. stocks and the resilience of shoppers.
Even though the data, due Friday, will cover the crucial Christmas shopping season, economists surveyed by FactSet expect retail sales to have fallen 0.6% month-on-month. That’s after November’s forecast-beating climb of 1.1%, seen as driven by Black Friday shopping — a relatively new phenomenon in the U.K., which doesn’t observe Thanksgiving.
In the past, retailers have kicked off their discounting on Boxing Day, the day after Christmas itself. So the shift has some strategists — and the Office for National Statistics itself — marking time until the full picture becomes clear. Plus, the timing of the festive holiday can have an impact.
“At this time of year, U.K. retail sales figures are ‘noisy,’” said Victoria Clarke, an economist at Investec, in a note. “One reason is that the relative strength of retail sales in December can vary depending on which day of the week Christmas fell.”
As Christmas Day 2017 fell on a Monday, the extra shopping day could lift sales volumes, said Clarke.
“We await the full retail-sales data for the months November to January, to judge how consumer spending has fared through the crucial seasonal period, amidst the ongoing household cash squeeze,” she said in a note.
Why do the retail figures matter? For one, the Bank of England is watching closely as it tracks inflation and considers the future of interest rates. But more important, it’s a sign of how resilient the British consumer is in the face of stalled wages and uncertainty around Brexit.
Food price inflation stands at a “relatively high” rate of 3.9% and serves as a headwind for retailers, HSBC analysts wrote in a note released last week. But food sales marked their strongest year-over-year rise in six years in a record-breaking week ahead of Christmas Day, said the British Retail Consortium.
“Retailers such as Tesco are resisting inflation as much as possible and prioritizing volumes,” wrote HSBC analyst Andrew Porteous. “We believe Tesco is best positioned to cope in the sector as its recovery becomes increasingly embedded.” Shares of the supermarket chain operator /zigman2/quotes/203761082/delayed UK:TSCO -0.93% have risen a modest 0.6% so far this year.
A better-than-expected retail-sales reading could give a further boost to U.K. equities that are already hovering around record highs.
Coming into Friday’s report, the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.20% gauge of blue-chips has recently logged record closing highs, with the last one of 7,778.64 made on Jan. 12. The midcap FTSE 250 index /zigman2/quotes/210598417/delayed UK:MCX +1.02% remains in striking distance of its record close of 20,932.56 made Jan. 5.
“Inevitably, there could be a slight dampening of sentiment if the numbers were particularly weak,” said Richard Hunter, head of markets at Interactive Investor, in a telephone interview.
The British Retail Consortium has said like-for-like retail sales rose 0.6% in December, a figure it deemed “meagre”. Meanwhile, Britons spent £1 billion more during this year’s Christmas period than last year’s, according to Kantar Worldpanel.
A notable beat on retail sales could have a bigger impact on the FTSE 250, considered a more domestically oriented benchmark, than on the FTSE 100, said Hunter. About 57% of revenue for FTSE 250 constituents is generated from the U.K., while 75% of revenue is made overseas by FTSE 100-listed companies.
Retail stocks earlier this month were rocked after profit warnings from baby-care products seller Mothercare PLC /zigman2/quotes/209001476/delayed UK:MTC -2.93% and department store chain Debenhams PLC. But among so-called holiday winners, Wm. Morrison Supermarkets PLC /zigman2/quotes/205533138/delayed UK:MRW +0.79% said like-for-like sales rose 2.8% and that it’s backing its fiscal 2018 guidance.
|STORE||Comparable sales up/down||Reporting period|
|Debenhams||- 1.3%||17 weeks to Dec. 20, 2017|
|Marks & Spencer||- 1.4%||13 weeks to Dec. 30, 2017|
|Morrisons||+ 2.8%||10 weeks to Jan. 7, 2018|
|Next||+ 1.5%||54 days to Dec. 31, 2017|
|Sainsbury||+ 1.1%||15 weeks to Jan. 6, 2018|
|Tesco||+ 2.3%||19 weeks to Jan. 6, 2018|
Investors have been wading through a slew holiday-period updates to gauge how well consumers have fared as inflation has climbed to 3%. Higher consumer prices prompted the Bank of England in November to raise its benchmark interest rate for the first time in a decade.
But “we’re certainly not in a situation where the Bank of England could look at the retail sales and think interest rates are too high; we’re not there,” he said.
“It’s another one of those figures feeding into the overall mix, which for the U.K. economy as a whole has been surprisingly positive over the last six to nine months,” as the U.K. government works on leaving the European Union.
The Office for National Statistics report on retail sales is due for release at 9:30 a.m. London time, or 4:30 a.m. Eastern Time, on Friday.