Jan 09 - Sales data for UK retailers over the crucial Christmas period support Fitch
Ratings' expectation that 2013 will be a year of weak top-line growth, flat margins and regular
discounting for European non-food retailers. Combined with high capital expenditure, this will
lead to limited free cash flow, which will restrict deleveraging ability.
Government austerity measures, low wage inflation and high unemployment will limit growth
across much of Europe in the coming year. Operating margins are likely to hold steady as
retailers have made progress in managing costs, which mainly applies to the largest chains, but
any further savings are likely to be reinvested in price promotions and reductions. This is
particularly the case in the UK, where Fitch's rated universe is concentrated. The UK has become
a promotion-led market as consumers choose to buy only when there is a sale or special offer.
Despite weak sales growth, we expect many retailers to increase their investment in
multi-channel platforms, store refurbishment and service quality to defend their market share.
The need for a multi-channel offering is backed up by the British Retail Consortium figures
released on Monday, which show that online sales rose 17.8% in December from a year earlier,
while total sales rose 1.5% and like-for-like sales gained just 0.3%. The figures include food
and non-food sales. Increased use of smartphones and tablets has helped and will continue to
fuel growth in online shopping.
While European non-food retailers have been more efficient in terms of their management of
investment programmes and have put greater focus on internal cash flow generation, the
investment in multi-channel platforms and stores is likely to push capital expenditure to a
five-year high in 2013. This will limit both free cash flow and deleveraging capacity in the
These forecasts are included in our report "2013 Outlook: European Non-Food Retail", which
is available at www.fitchratings.com.