Fashion, luxury and lifestyle news aggregator - November 2024

Posted: 03/12/2024

Budget blues: the future of UK retail

Labour’s Autumn Budget has had a muted reception from the retail sector, the general consensus being one of concern over the increased costs the industry will face.

Of the main changes that will impact retailers, the employer National Insurance contribution will rise from 13.8% to 15%, and the threshold at which it applies will also drop from £9,000 to £5,000, meaning higher payroll costs. The minimum wage will also increase from £11.44 to £12.21 per hour. Retail will be ‘disproportionately affected’ by this as one of the highest people-related industries in the UK, with a retail workforce of 3.46 million. Finally, in respect of business rates, there will be reduced relief available for retail, hospitality and leisure property. This ‘triple whammy’ will raise costs for retailers, who are going to have to find ways of mitigating the hit to their businesses.

In response, a letter was written to the Chancellor of the Exchequer and signed by 82 retail CEOs, highlighting their concerns about the Budget. They said the ‘sheer scale of new costs’ will create a burden leading to job losses and higher prices. These costs could rise by up to £7 billion a year. Figures have in fact shown that sales at clothing and footwear stores fell 3.1% in October in response to the tax rises, perhaps indicating a ‘deeper concern about the prospects for the year ahead’.

From a positive angle, there will be more funding to tackle retail crime, repealing the legislation which downgraded shoplifting incidents amounting to £200 or less, although some say it is too little, too late.

Overall, it seems that retailers think the latest proposals will add to their burden. The effect of this remains to be seen – will consumers be the ultimate victims? Retailers may face store closures and redundancies. In particular, smaller independent retailers may struggle compared to their larger luxury counterparts.

Festive forecast: Christmas campaigns and predictions

As indicated above, a challenging Budget and another tumultuous year led to a disappointing October as the UK’s retail sales dropped by 0.7%. Although this was the largest monthly fall in retail sales since June, November saw the return of Christmas campaigns and shopping, with retailers expecting a record £88.3 billion of spending in the UK.

Following last month’s update indicating that there was hope yet for John Lewis, it has recently confirmed it is ‘quietly optimistic’ about the run-up to Christmas. This is likely due to John Lewis and Waitrose currently trading ahead of their annual plans. Marks & Spencer has also forecast strong Christmas trading after reporting a 17% rise in first-half profit.

News in the luxury retail sector, however, has been less positive. Burberry’s new CEO, Joshua Schulman, launched an urgent turnaround strategy to improve the luxury retailer’s performance following a 20% drop in revenue. In light of this, the company’s ‘Wrapped in Burberry’ Christmas campaign launched this month, including actors David Tennant and Alex Hassell. Mulberry also replaced its CEO this year following loss pre-tax of £15.3 million in the six months to September 2024. Luxury jewellery brand Tiffany & Co has launched its holiday campaign, ‘With Love, Since 1837’, starring actress Anya Taylor-Joy. Meanwhile, Selfridges has revealed its Christmas decorations at the Oxford Street flagship store themed ‘More the Merrier!’, including 5km of garland, 15,000 LED lights and 36,000 baubles. This follows losses of almost £42 million for the year to 3 February, against £39.3 million the year before. As Christmas approaches, more campaigns are expected as retailers will compete to take advantage of the festive season following a difficult year.

Behind the seams: key M&A updates in luxury fashion

FTC blocks Tapestry and Capri merger
In a significant move for the high-end fashion industry, the US Federal Trade Commission (FTC) has blocked the proposed merger between Tapestry Inc and Capri Holdings. Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman, aimed to merge with Capri Holdings, which owns Michael Kors, Versace, and Jimmy Choo. The $8.5 billion deal was set to create a formidable American luxury conglomerate.

However, the FTC cited concerns over market dominance in the accessible luxury sector. The commission argued that the merger would reduce competition, potentially leading to higher prices and fewer choices for consumers. Although a US decision, it highlights the wider importance of maintaining competitive markets to protect consumer rights, particularly in markets which cater to a broad demographic seeking luxury at more affordable prices. Both companies have issued statements intending to appeal the decision, noting that the merger had previously cleared regulators in Europe and Japan.

Burberry and Moncler: takeover rumours
The fashion world has been abuzz with rumours of a potential takeover of Burberry by Italian luxury brand Moncler. Speculation intensified after reports suggested that Moncler was preparing a bid for the iconic British label. Burberry's share price surged on the back of these rumours, reflecting investor optimism about the potential deal.

However, recent reports indicate that Moncler is not currently in talks to acquire Burberry. Sources close to the matter have dismissed the takeover speculation, suggesting that while the idea may have been floated, no formal discussions are underway. This development leaves Burberry's future independent, at least for the time being, as it continues to navigate the competitive luxury market.

The Foschini Group acquires White Stuff
In a notable acquisition, The Foschini Group (TFG), a South African retail giant, has purchased British high street fashion brand White Stuff for approximately £50 million. TFG, which already owns brands like Whistles, Hobbs, and Phase Eight, aims to expand White Stuff's presence both in the UK and internationally. This acquisition is part of TFG's broader strategy to strengthen its portfolio of premium fashion brands and enhance its footprint in the global retail market.

These developments highlight the dynamic nature of the luxury fashion industry, where mergers and acquisitions continue to shape the competitive landscape, as brands navigate regulatory challenges and market speculation.

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