De britiske forventninger til salg af varige forbrugsgoder i 2019 er mere afdæmpede, da husholdningernes økonomi er anstrengt, og væksten i privatforbrug er faldende.
- The performance outlook remains subdued
- Payment takes 60 days on average
- Insolvencies expected to increase more than 5%
Last year the British consumer durables sector was impacted by increased economic uncertainty, lower GDP growth and decreased consumer confidence, leading to tougher trading conditions and a downgrade of the business performance/credit risk situation of the industry from “Fair” to “Poor” in December 2018.
Since then, the situation has not improved at all. According to the British Retail Consortium footfall during the 2018 holiday season decreased 2.5% year-on-year (after declining 3.5% in 2017), and sales remained stagnant – the first time since 2008 that there was no annual growth.
The sales outlook for consumer durables in 2019 is subdued, as consumer sentiment remains low, household finances are strained and private consumption growth is decreasing. Uncertainty over the Brexit outcome additionally hampers consumer spending and business investment. The economic growth outlook for the UK has worsened since Q4 of 2018 and remains highly uncertain.
While the sales performance of household appliances has shown some resilience so far, furniture retail has been impacted by lower demand and higher input prices due to the weaker pound sterling, as furniture heavily relies on raw material imports. In the consumer electronics segment, low levels of innovation and longer product life cycles have led to difficult market conditions. Changes in consumer buying patterns (e.g. in the mobile phone segment away from ‘bundles’ towards sim free/sim only) mean that retailers need to adapt their offering. The textile/footwear segment has been impacted by unseasonal weather conditions, poor buying patterns and increased import costs, as clothing is heavily reliant on overseas manufacturers in Asia and Europe).
Given the more difficult trading conditions it comes as no surprise that profit margins of consumer durables retailers deteriorated in 2018. Further decline is expected in 2019, mainly for brick-and-mortar retailers. The portfolio payment experience has been bad over the past two years, and we expect non-payment notifications to increase again in 2019.
According to Ernst & Young, retailers reported a 50% increase in profit warnings in 2018 due to margin pressures, the need for reinvention and lower consumer confidence. The clothing segment is mainly affected.
Retail insolvencies increased in 2018, with about 2,600 shops and stores affected, compared to 1,400 in 2017. The number of business failures of large retailers also rose, especially in the textiles/footwear segment. A growing share of businesses, including multi-store retailers, has entered ‘Company Voluntary Arrangement’, trying to reduce their debt and/or rent burden with this insolvency procedure.
In 2019 retail insolvencies are expected to increase by more than 5%. The industry is going through a period of correction, with businesses failing to adapt to online demand facing serious troubles. Lower sales and postponement of investment decisions have large ramifications for both larger and smaller retailers.
We currently maintain a restrictive underwriting approach in the consumer durables industry. Our underwriting stance for household appliances remains neutral for the time being, but a deterioration in the short-term future cannot be ruled out. We are restrictive with buyers in the furniture and consumer electronics segments, and even very restrictive with clothing/footwear retailers due to sharply increased numbers of business failures, including insolvencies of larger businesses.
We continue to monitor developments in the sector on a regular basis, making as much contact with buyers as possible (meetings, conference calls, and management accounts). This enables us to track progress and underwrite appropriately on a case-by-case basis. In particular, we focus on businesses that rely heavily on sourcing materials from overseas, those who have large store portfolios, high levels of debt to service and those whose financials are showing signs of deterioration.