The global inflation crisis is hitting retailers that can’t pass along higher costs to customers, putting them behind stronger rivals that still have pricing power.
Three sellers of everything from food to apparel to cosmetics revealed Thursday how soaring prices are affecting consumer demand and squeezing sales.
THG Plc, the online shopping emporium, said earnings would miss guidance, sending its shares down as much as 24 per cent to a record low. John Lewis Partnership Plc, a bellwether for British retail, and Swedish fashion giant Hennes & Mauritz AB also published disappointing results.
H&M posted a 4 per cent drop in revenue in the latest quarter, a performance that stands in contrast to the 25 per cent surge in sales and higher-than-expected profits reported Wednesday by Zara-owner Inditex SA. The latter’s ability to pass on higher costs to shoppers helps explain the difference.
The average price of a Zara clothing item was up about 12 per cent in July compared to last year, according to data compiled by UBS from thousands of websites across 20 regions. That was more than twice the increase at H&M.
Luxury brands have also managed to buck the trend. E-commerce portal MyTheresa posted 18 per cent growth in its gross merchandise value on Thursday. “We serve a customer base where US$2,000 more in energy costs is not decreasing their discretionary spend,” CEO Michael Kliger told Bloomberg.
Nevertheless, pessimism over the industry’s prospects has made retail the worst-performing sector in Europe’s benchmark Stoxx 600 Index this year, down 37 per cent.
THG’s co-founder and Chief Executive Officer Matt Moulding said his company has invested heavily “in price protection for consumers currently facing unprecedented cost-of-living challenges.”
THG’s problems aren’t limited to the macro-environment. Shares have tumbled from a high of nearly 800 pence last year to under 40 pence amid concerns over its governance and business model, and two unsuccessful takeover bids. Nonetheless, it is suffering from a spike in costs -- for example, in the price of whey that goes into its protein shakes -- and the squeeze on consumer spending.
At John Lewis, Chairman Sharon White argued that the company’s employee-ownership model gave it an ethical obligation to protect staff, customers and suppliers from soaring inflation and an impending recession.
“We are forgoing profit by making choices based on the sort of business we are,” White said, adding that it has been “extremely considered” in how it passed on costs. School uniforms are no more expensive than last year, she said, citing a £500 million (US$633 million) investment in holding down prices. “We are leaning into value in an even more significant way,” she added during a call with journalists.
Retailers such as Associated British Foods Plc, which owns budget chain Primark, and Macy’s in the US have also said that profits will be squeezed by rising costs.
With inflation exceptionally high and Christmas on the horizon, the ability to pass on higher costs will prove an increasingly crucial test of companies’ ability to protect their bottom lines.
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