Good evening
What can we learn from the latest data and company results about the state of the retail industry and changes in consumer behaviour as the economic mood darkens?
Although the big US retailers have ditched talk of a “Roaring Twenties,” there are still signs that the sector can weather the downturn. Positive results from Walmart, the world’s largest retailer and a bellwether for US consumer demand, confirm that Americans still love a bargain, even after the company issued a profit warning over a glut of inventory just three weeks ago.
Fellow retail giant Home Depot was also buoyant, reporting its highest quarterly sales and earnings on record and that consumers were still spending on home improvements despite rising prices. Target, another US bellwether, provided a counterbalance to the optimism, with its discounting efforts leading to a larger than forecast drop in profits.
Official data on Wednesday meanwhile showed US retail sales holding up while consumer sentiment appears to be recovering from historically low levels.
The picture is much bleaker across the Atlantic with two new sets of data today showing the impact of the cost of living crisis on UK households and their shopping habits.
Consumer confidence has fallen to its lowest level since records began 50 years ago, according to GfK’s monthly survey, while official retail sales data showed people are shopping less.
GfK said its survey pointed to a “sense of capitulation, of financial events moving far beyond the control of ordinary people” which would likely lead to “changing buying behaviour, both of which will impact the high street and wider economy”.
Weakening consumer demand has also been a key feature in UK retailers’ results including yesterday’s from AO World and Made.com. Footfall on London’s Oxford Street, one of Europe’s busiest shopping thoroughfares, is down 60 per cent compared with pre-pandemic times in 2019 and the road is plagued by empty retail space, tatty souvenir stores and mysterious sellers of American sweets.
The growth in ecommerce that was turbocharged during the pandemic also appears to be slowing, as evidenced in results from companies such as Zalando, Europe’s largest online fashion retailer, and data from countries such as Japan.
Retail hopes are now pinned on innovations such as livestream ecommerce, a modern version of QVC or the Home Shopping Network, but with social media influencers plugging products.
The plumbing that enables ecommerce has also taken a hit. Shopify, the Canadian platform providing an alternative to selling through Amazon, announced it would axe 10 per cent of its workforce as its bet that the pandemic shopping boom would continue turned sour.
Innovation editor John Thornhill says the direct-to-consumer retail trend is faltering as companies face higher advertising costs on Facebook and obstacles thrown up by Apple complicating customer tracking, on top of the problems faced by traditional retailers.
The bigger picture, suggests US investment and industries editor Brooke Masters, is that “consumers have soured on stuff”. As western economies rebalance back towards services and away from goods, big companies have been left struggling to adjust, she argues.
“Either way, the chance that some companies will get caught out is rapidly rising. There is after all a reason why economists call it discretionary spending,” she concludes.
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Need to know: the economy
The FT revealed prime ministerial frontrunner Liz Truss planned to shake up the UK’s financial regulators, merging the Financial Conduct Authority, Prudential Regulation Authority and Payments Systems Regulator into a new body. The FT’s Cat Rutter Pooley says resurrecting a form of the old Financial Services Authority is a terrible idea. The FT editorial board concurs.
Latest for the UK and Europe
The UK’s public finances improved in July but the country still borrowed more than forecast. Short-term borrowing costs are set for the biggest weekly rise in more than a decade as investors bet on firmer action from the Bank of England to curb inflation.
UK energy groups called for an “immediate” increase in the £400 rebate on energy bills as the scale of the hit on households became clearer. A director of regulator Ofgem quit in protest at the way changes to the energy price give “too much benefit to companies at expense of consumers”.
German producer prices rose at a record 37.2 per cent in July, driven by a doubling of energy costs for industrial groups. The government is slashing VAT on household gas bills to offset the impact of a new gas levy that starts in October.
Turkey surprised markets with an interest-rate cut of 100 basis points even as inflation inches towards 80 per cent.
Norway raised borrowing costs by 50 basis points for the second time this year and warned of more to come.
Global latest
Middle East states are set for a $1.3tn windfall in extra oil revenues over the next four years, according to the IMF, seriously bolstering the power of their sovereign wealth funds.
Minutes from the US Federal Reserve’s recent policy meeting suggest interest rates will need to be kept at restrictive levels “for some time” as it battles surging inflation.
Ghana raised interest rates to 22 per cent in an attempt to tame inflation, now running at 31.7 per cent, and a fast-depreciating local currency.
Columnist Helen Thomas looks at the threat to global supply chains as climate change leads to drought and the drying up of key waterways.
Need to know: business
More European smelters are likely to follow the closures of two large operations in Slovakia and the Netherlands this week because of soaring energy costs. This could force large manufacturers, which rely on the smelters for metals such as aluminium and zinc, to turn to overseas producers, helping China and Russia cement their grip on global markets.
DP World, the Dubai-based parent of P&O Ferries, which attracted opprobrium for its mass sacking of crew members, hit record profits of $721mn in the first half of the year, thanks to a strong performance from its cargo business.
US junk bonds have made a startling recovery as investors bet that the Fed’s efforts to curtail inflation will avoid sparking a deep recession. Quant funds, which look for trends in the market and then attempt to ride the momentum, are increasing their bets on US stocks, helping fuel the recent market rally.
The UK financial regulator warned businesses that offer buy now, pay later products against misleading advertising.
The EU is bracing for legal challenges to its new legislation setting standards for Big Tech.
Country Garden, China’s largest real estate group, warned that half-year profits could dive 70 per cent, highlighting the continuing crisis in the country’s property market. Profits more than halved at Geely, the country’s leading Chinese carmaker, thanks to chip shortages and pandemic restrictions hitting demand and disrupting production.
Britons are likely to continue the pandemic trend of drinking from home, according to Australia’s largest listed wine producer, with a penchant for the lower-end £6-£8 a bottle price point. In Japan meanwhile, the government is promoting boozing among the young as its finance ministry frets over disappearing tax revenues.
Science round-up
The first detailed study of Covid-19’s persistent neurological and psychiatric effects showed a significant increased risk that people could develop dementia, psychosis and brain fog two years after infection. The impact was most marked in over 65s, among whom 4.5 per cent developed dementia over the subsequent two years, compared with 3.3 per cent of the control group.
The UK became the first country to approve an Omicron-specific booster. Moderna’s shot targets the original strain of the virus and the BA.1 variant and is expected to be authorised in other countries shortly.
Top US health official Rochelle Walensky said the Centers for Disease Control had made “dramatic mistakes” in tackling Covid as she announced a shake-up to improve the CDC’s response to emergencies.
Although much of the world has reduced or ended Covid restrictions, the picture is very different in Japan and much of Asia with tourism still badly affected. Fears of being caught in a Covid lockdown in China are also threatening consumer confidence and any revival in tourism.
And just in case all this, as well as monkeypox and the possible comeback of polio were not worrying enough, a new strain of avian flu is decimating wild birds. Tightening biosecurity and widening surveillance is needed to protect both animals and people, says science commentator Anjana Ahuja.
Get the latest worldwide picture with our vaccine tracker
Some good news…
Scotland this week became the first country in the world to give people the right to free period products.
Source: Economy - ft.com
