If Chancellor George Osborne thought that his friend Simon Wolfson would come out today and share his rosy view of the economic recovery, then he was mistaken…

If Chancellor George Osborne thought that his friend Simon Wolfson would come out today and share his rosy view of the economic recovery, then he was mistaken…

Today is “Super Thursday” in the autumn reporting calendar, with a plethora of results and trading statements, and it has brought its share of surprises. But although the Chancellor George Osborne is trumpeting the UK economic recovery, his confidence is not shared by everybody in the retail industry and the great guru, Simon Wolfson of Next, remains quite cautious about the economic outlook.

The Next interim results are always a key date in the retail calendar and a year ago Next caused some consternation by saying that the last 6 weeks had been “disappointingly and unusually quiet”. A year on and its highly regarded CEO Simon Wolfson steered away from looking at short-term trading trends (apart from noting the unhelpful impact of warm weather on fashion sales in August) and focused instead on a very detailed review of the economic background and outlook.

Simon Wolfson noted today in his Next interims presentation that the consumer credit squeeze may be over and that the housing market is picking up, but that, although these are broadly positive trends for retailers, there is a risk that they simply cause a short-lived and unsustainable inflationary bubble and that the underlying problem remains the continuing pressure on real incomes.

Without wishing to suggest for a moment that politicians don’t always tell the truth, Simon Wolfson’s intervention in the debate about the economic recovery was powerful and well-timed and communicated with brutal clarity.

The upshot of all this is that Next said: “There is nothing we can see in the wider economy or our recent trading that would lead us to alter our sales budgets for the Autumn Winter Season”. Needless to say, Next again outperformed against this challenging economic background in the first half and the interim results were, predictably, at the top of the range, with EPS up 20%.

So is Next’s caution shared by the other retailers who have been reporting? Well, Kingfisher’s CEO Ian Cheshire said yesterday that he is also cautious about the impact of the UK economic recovery, noting that Kingfisher has yet to see a real difference in the amount of money coming through its tills, although there may simply be a lag before increased housing transactions filter through to the DIY market.

Ironically, one of the better trading updates today has come from Home Retail, for the 13 weeks to end August, with Homebase smashing expectations with a 11% LFL sales increase (and a flat gross margin), thanks to the boost to its seasonal ranges from the fine summer weather. Argos also did a bit better than expected, with +2.7% LFL in the period, thanks to its exposure to the strong electricals market. Home Retail said, however, that “we continue to expect consumer spending to remain subdued”.

Morrison’s continues to struggle, alas, and find the market challenging, but that says something about its vulnerability to the growth of Aldi and Lidl in its Northern heartland and something about its under-exposure to the growth segments of the grocery market, namely online and convenience stores.

Finally, what of that great retail bellwether, the John Lewis Partnership? Chairman Charlie Mayfield says today, with current trading up 4%/5% LFL overall, that “Despite a strong second half last year, we expect to trade positively in the second half”, but John Lewis and Waitrose have been outperforming for quite some time now and continue to gain market share, so they are entitled to be confident about prospects, despite the tough comps looming on the horizon at Christmas. But down in the mass-market things are not as rosy as the Chancellor would have us believe and Simon Wolfson was quite right today to deflate the rising bubble of expectations of a full-blown economic recovery.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.