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A brief moment of clarity

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Last year was bad for anyone working or investing in the UK retail sector.  Barely a week went by without a profit warning, a voluntary administration or a closure.  The reason for this is simple and obvious enough to understand for anyone who wants to: after a decade of austerity that has left the inflation-adjusted average wage at just two-thirds of its 2008 value, people simply lack the discretionary income to maintain the consumer economy.

Denial, however, is a wonderful thing for anyone – like a government minister, banker, economist, journalist or hedge fund manager – whose job depends upon not noticing that the economy has been going to hell in a handcart in the years since world governments chose to throw the people under the bus in order to bail out the banks.  The result is that MSM journalists seem wilfully incapable of understanding that if people have less money to spend today than they had ten years ago, then unpleasant things are likely to happen to the retail companies that sell them things.  Instead, UK media outlets have sought to blame the unfolding retail apocalypse on:

Each is superficially plausible.  Most people anticipate some economic disruption from Brexit; and this may explain why some people may be waiting to see if their jobs are safe before committing to large purchases like cars and houses.  This said, given that import prices are likely to rise after Brexit, cars and other expensive items are likely to be cheaper now than they will be in April.  More important, however, is that only a certified lunatic (or an economist) would believe that Brexit is the reason why people did not go pubs in the summer, eat in restaurants in the autumn, shop for winter clothes in November, or buy Christmas presents last month.

Owing to the peculiar location of the British Isles at the junction of four separate air flows – warm and wet Atlantic, wet and cold Arctic, dry and cold continental/Siberian, and warm and dry southern – we tend to have unusual weather at the best of times (one reason why Britons seem so obsessed about it).  But 2018 was unusual even by British standards.  An unusually warm winter was closely followed by the unseasonable “Beast from the East” snow storm in March.  This, in turn, was followed by a heatwave that began in May and lasted until early July.  Then after a reasonably normal September, we enjoyed an unusually warm lead up to the end of the year.  One result of this was that journalists could always blame any bad economic news on the weather.  Poor sales in March were due to the cold, but poor sales in June were because of the heat.  People weren’t eating out because it was too hot/cold/wet/dry.

In June and July, MSM were able to blame the football world cup in Russia for falling sales.  People, it seems, were too busy watching football at home to go out shopping or to eat out.  The fact that, rather like Brexit, half of the population would have preferred that it wasn’t happening and would go out of their way to avoid it seems not to have been considered.

The Internet in general and Amazon in particular, became the main villain in the MSM narrative about falling sales.  The reason, they said, that High Street outlets were failing was that consumers had simply switched to buying online.  While it is true – and understandable – that online sales have risen, they have not risen to anything like the extent needed to account for the losses on the High Street.  Moreover, by the end of 2018 even internet retailers were feeling the squeeze as consumers simply stopped buying.

At the beginning of 2018 retail sector insiders talked about being just one bad Christmas from disaster.  The sales figures being released this week suggest that we collectively just delivered that one bad Christmas.  According to the British Retail Consortium (BRC – the sector’s trade body) year on year sales were flat (0.0%) in December.  This figure, however, hides an important distinction between discretionary and non-discretionary spending.  Food – most of which falls into the non-discretionary pot – continued to grow, while non-food – mostly discretionary – sales slumped.  This is reflected in the type of stores that fared well, such as supermarkets Morrisons and Tesco together with the John Lewis group due to sales from its Waitrose subsidiary.  Moreover, reporting the volume of sales may serve to obscure the impact of discounted prices.  As the BBC report:

“Debenhams said customers had been seeking discounts and left their shopping late. It said sales fell 5.7% in the 18 weeks to 5 January.  Marks and Spencer also reported a fall in sales over Christmas, down 2.2%.  Tesco said sales were up, as did John Lewis. But John Lewis warned that staff might not receive bonuses for the first time since 1953.”

One impact of the unfolding tragedy in the UK retail sector is that insiders are having difficulty sticking to the denial script being followed by MSM.  Fellow insomniacs up early enough to listen to the 6.30am business news on BBC Radio 4’s Today programme this morning will have heard a somewhat fractious exchange between the interviewer and Helen Dickinson, CEO of the BRC when the interviewer tried to play the worn internet/Brexit/weather trope.  Dickinson cut through the denial and slapped consumer spending on the desk like a rotten fish (too smelly to ignore):

“Squeezed consumers chose not to splash out this Christmas, with retail sales growth stalling for the first time in 28 months…”

The BBC’s business presenter Dominic O’Connell later wrote:

“The Christmas trading period has simply reinforced what we already knew about the health of the High Street – that trading is tough, that those with decent online operations enjoy some degree of protection from that tough trading environment, and that the great High Street shakeout that has already claimed Maplins, Toys R Us and others may have only just begun.”

It would seem that 2019 will indeed by the year when we finally reach peak denial.  However, it is doubtful that the lapse into the cold hard reality of our predicament will venture much beyond the retail apocalypse.  Indeed, once – as looks increasingly likely – Britain has its unplanned and chaotic Brexit, the economic fallout is likely to focus attention on knee-jerk reactions to immediate problems rather than any serious analysis of the underlying forces that have been gathering pace for nearly half a century to bring us to the edge of the precipice that we are about to fall over.

As you made it to the end…

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