- Sports Direct downgraded by Canadian bank RBC over “cost and currency pressures”
- Debenhams likely to be hit from sourcing goods in dollars
- Asos well placed to cope with inflationary pressures
Sports Direct and Debenhams will be among the hardest-hit retailers from Brexit owing to currency pressures, according to an analyst’s report.
Canadian bank RBC has predicted that a post-referendum dive in sterling, coupled with rising cotton prices and the living wage will lead to a 3% jump in overall retail prices next year.
RBC analysts predicts that some retailers will try to pass on cost inflation to consumers, who have become used to price deflation.
Sports Direct is likely to be particularly hit because “as a discounter any price rises are likely to be noticeable to its customers, much more so than at the premium end of the market”, the report noted.
The Mike Ashley-controlled retailer, which is already under pressure over its working practices, sources the majority of its own-label products from Asia in dollars, which makes it especially vulnerable to a fall in sterling, RBC said. The bank downgraded Sports Direct to “underperform”, which hit its share price yesterday.
On Debenhams, which RBC also downgraded, the report said: “Given its relatively high fixed-cost base, Debenhams is relatively leveraged to the UK consumer outlook.”
It added: “Competition remains fierce in the UK clothing sector, particularly from speciality chains, online retailers and discounters.
“Debenhams could also see further gross margin pressure from higher-than-expected promotional activity or from input cost pressure if sterling weakens further or labour costs rise further.”
It noted that owing to sourcing its goods in dollars the department store chain’s sales are likely to be hit.
However, RBC struck a more positive note on online fashion retailers, particularly Asos.
“We think the outlook for Asos is improving led by volume benefits due to price investments and further delivery enhancements such as faster delivery speeds and later cut-off times,” the report said.
“We also think Asos will continue developing its click-and-collect offer in Europe as well as expanding its loyalty scheme in the UK.
“In addition, we see a sizeable revenue growth opportunity for Asos in the US given recent price cuts and delivery improvements, and with potential plans for future local warehousing.”