With the peak trading season for many retailers just kicking off, this is the time of year for finance directors to be at their most anxious as they focus on their forecasts for the financial year.
Each day’s trading is carefully scrutinised and compared to previous years, together with other variables such as where in the week Christmas Day actually falls.
In recent years, the addition of Black Friday promotions has added further complication and compounded the difficulty in forecasting.
“In all my retail life, I’ve never known a trading environment so volatile and difficult to predict”
However, this year I would propose a different and far simpler approach. Rather than having all the complexity of calculating numbers day by day, I would write a series of numbers on separate pieces of paper, put them in a hat, and ask the chief executive to pick one out. It is that unpredictable. Of course, this method has the added benefit for the finance director of making it the CEO’s forecast.
In all my (now rather long) retail life, I’ve never known a trading environment so volatile and difficult to predict.
The consumer is not in a good place and hasn’t been ever since the 2016 EU referendum – the single most stupid and shameful political decision taken in my lifetime.
The Brexit malaise is already affecting GDP growth and that’s before we leave, after which the impact will be even worse.
Bad for business
The combination of uncertainty over when and whether Brexit will happen – and what it means if it does – has now been amplified by the upcoming general election on December 12.
More uncertainty: who will win the election; will there be an outright winner or will we have a coalition; what combination of parties would form a coalition; will a similar makeup in Parliament to the current one force a second referendum?
For the last 30 years, we have had a succession of centrist governments, both Conservative and Labour, which has provided a generally calm economic environment in which the nation has flourished.
“Against the backdrop of the election, there will be moments when retailers worry about the consumer being distracted from making purchases”
Unless some form of coalition emerges following the election, we face the prospect of either an extremist right- or left-wing government. How will this affect both macroeconomic and consumer confidence when almost half the country is diametrically opposed to the views of the government?
Uncertainty is clearly bad for business, but it will be a price worth paying in the short term if the decision to leave the EU can be overturned. I vividly remember the three-day week, the Winter of Discontent and public sector strikes from the 1970s – it was an awful time, but the electorate was able to change the government in a general election.
If we actually leave the EU, it could potentially be a generation before we can rejoin, during which time our political, economic and social standing will be diminished.
However, the current low level of confidence among consumers is having a serious and immediate impact on our industry as evidenced by the current spate of corporate administrations.
Short respite
Many retailers are run on very tight levels of working capital, especially those that have spent time in private equity ownership, so sustained periods of tough trading put them under immense cash pressure very quickly.
The effect on mature retailers of consumers switching purchases to the online channel while the business still owns a large store estate has changed the financial model forever and will make the enterprise less profitable until the level of property costs is corrected.
In the next few weeks, against the backdrop of the election, there will be moments when retailers worry about the consumer being distracted from making purchases.
However, unlike Brexit, we can be assured that Christmas Day will occur on December 25 and, despite all the noise, people will want to celebrate.
Hopefully, the finance director can, therefore, enjoy a very short respite, because although there will be some winners, particularly in the digital channel, the long-term macro environment for retail is pretty grim.
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