What Next for retailers?


Declining food prices hurt Sainsbury’s annual profits, with the supermarket chain’s underlying profits down -13.8% to £587m although profit before tax came to £548m reversing the prior year’s £72m loss. Sainsbury’s CEO Mike Coupe has said that grocery prices are 4% lower than two years ago and this fierce competition is unlikely to change in the foreseeable future. Following the news shares dropped 6.27%.

Looking at the index as a whole, the FTSE 100 fell for the third straight day hitting three week lows as miners continued to weigh heavily on the index. At the close the index was at 6112.02, down 1.19% for the day. Following negative announcements from Sainsbury’s and Next the underlying tone was risk-off for investors, with supermarkets, retailers and miners all struggling on Wednesday.

The European Commission announced on Tuesday that euro zone growth is likely to slow further, a forecast of 1.6% for the 19 euro sharing countries falls from 1.7% last year. The EU Commission cite low interest rates have failed to ignite investment and urge governments to help the ECB.

Retailer Next has warned that profits could be lower than previous forecasts as a result of a consumer spending slowdown. In the 3 months to May full price sales were down 0.9% compared to last year, with the weather being blamed again. This marks the third downgrade in annual sales guidance in the last 5 months for Next, following their announcement saw shares rise 3.46%.

Payday lender and Newcastle United sponsor, Wonga, has seen losses double last year as a result of tougher regulation within the sector. Within the regulator’s Arsenal was the cap on payday loans’ cost to 0.8% per day, which has taken Wonga’s losses to over £80m. The tightening of rules has reduced the default rate on UK loans to 2.8% from 6.6%.

Adidas looks to scratch most of its golf business, announcing plans to focus more on clothing and shoes. Golf’s popularity continues to dwindle, and Adidas plans to sell TaylorMade, Ashworth and Adams which is around 60% of their golf business.

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