Blog: "Negative headwinds" getting stronger

Joe Ayling | 11 October 2010

Last week Marks and Spencer (M&S) became the latest UK retailer to issue caution about the wider sales environment, in spite of buoyant second quarter results. The company reported a 6.5% sales rise for the quarter, with clothing revenues climbing 7.8%.

Analysts suggested that shoppers in the UK are turning their focus to quality, bolstering M&S' top line in the process. However, the overall outlook for UK retailers is being tarnished by the prospect of rises in VAT and public spending cuts. Neil Saunders, consulting director of Verdict, said: "With the negative headwinds of government cuts on the horizon, the consumer environment is likely to become much tougher."

Also last week, industry leaders were welcomed to the IAF World Apparel Convention in Hong Kong. Sourcing costs - a growing concern for retailers like M&S - were high on the agenda. John Cheh, vice chairman and CEO of Esquel Group, told delegates: "Material supply and surging costs will still prevail in the coming year."

Labour costs, currency effects and rising cotton prices are eating away at the margins of Chinese suppliers in particular. Should these costs filter through to the high street, selling cheap garments will become a far less profitable and sustainable strategy than in years gone by.


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