# Analysis-European retailers are on investors’ naughty lists this Christmas Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-28 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: European Retailers Brace for Holiday Season Amid Meta Description: The cost-of-living crisis is squeezing consumer wallets, impacting even big names like Adidas and H&M. Margins will be squeezed into next year due to URL: https://financedigest.com/analysis-european-retailers-are-on-investors-naughty-lists-this-christmashtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-28t063511z2lynxmpei9r06grtroptp4markets-europe-retail-christmas-1736814953833-compressed.jpg) By Joice Alves LONDON (Reuters) – The Christmas shopping period is unlikely to bring relief to European retailers that sell anything from running shoes to handbags as the cost-of-living crisis squeezes consumers and shrinks disposable income. The holiday season is traditionally a high point for the retail sector but even Europe’s big names are warning of tough months ahead this year, and investors have punished them accordingly. German sportswear company Adidas has slashed its full year guidance while world No.2 fashion retailer H&M has [launched a 2 billion](https://www.financedigest.com/abb-to-launch-1-billion-share-buyback-on-april-3.html "ABB to launch billion share buyback on April 3") Swedish crown ($177 million) cost-saving drive. Full-year profit at British online fashion retailer ASOS sank a whopping 90% from pandemic highs and its shares are the [second worst performing of the top 350 UK-listed companies this year](https://www.financedigest.com/ericssons-board-rebuked-by-shareholders-at-agm-for-second-year-in-a-row.html "Ericsson’s board rebuked by shareholders at AGM for second year in a row"), wiping out two thirds of its market capitalisation. Even companies such as Reckitt Benckiser, producing more mundane consumer-staple items like Dettol cleaning products and Durex condoms, and giant Unilever have [warned of pressure on consumers](https://www.financedigest.com/investors-warn-big-consumer-firms-over-price-hikes-as-competitors-gain.html "Investors warn big consumer firms over price hikes as competitors gain"). On stock markets, the European retail sector has lost 40% of its value so far this year, more than twice the [hit on the broader regional share](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks") index. Yet, JPMorgan and other strategists say the worst is yet to come for [consumers and retailers](https://www.financedigest.com/france-leans-on-retailers-to-help-consumers-cope-with-food-prices.html "France leans on retailers to help consumers cope with food prices") alike. Consumers are under a lot of pressure and are going to reduce some of the discretionary spending, while [costs for retailers](https://www.financedigest.com/amazon-other-retailers-revamp-free-shipping-as-costs-soar.html "Amazon, other retailers revamp ‘free’ shipping as costs soar") are going up,” said Ciaran Callaghan, Head of European Equity Research at Amundi, Europe’s biggest asset manager. Callaghan pointed to the rise in mortgages and other bills which is squeezing [consumers while higher prices](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") of raw materials, such as cotton, are driving up retailers’ costs. [Investors and strategists expect](https://www.financedigest.com/wave-of-lawsuits-over-ftx-expected-but-investors-will-face-legal-hurdles.html "‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles") retailers’ margins to be squeezed well into next year as cost pressures are further exacerbated by weakening currencies and collapsing consumer demand. (European retailers https://fingfx.thomsonreuters.com/gfx/mkt/movakmwmova/European%20retailers.png) [SURGING COSTS](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") Higher [energy bills and wages and elevated freight and fabric prices have pushed](https://www.financedigest.com/energy-bill-support-pushes-uk-budget-deficit-to-february-record.html "Energy bill support pushes UK budget deficit to February record") up costs for euro zone companies by more than 40% this year, according to Eurostat data. Weaker currencies – the [euro and the pound](https://www.financedigest.com/dollar-slips-after-upbeat-china-data-euro-pound-rise.html "Dollar slips after upbeat China data; euro, pound rise") are down 12% and 14% against the U.S. [dollar this year](https://www.financedigest.com/dollar-creeps-up-in-subdued-start-to-new-year.html "Dollar creeps up in subdued start to new year") – have also made goods more expensive for the import-heavy retail sector. Ahead of the holiday season, a slew of [companies have announced they plan to hire temporary Christmas](https://www.financedigest.com/why-more-companies-are-asking-new-employees-to-commence-employment-before-christmas.html "Why more companies are asking new employees to commence employment BEFORE Christmas.") staff with British retailers Boots and John Lewis each saying they would recruit 10,000 people. But wages are also [rising in tight job markets](https://www.financedigest.com/global-share-markets-rise-bonds-fall-on-u-s-jobs-data.html "Global share markets rise, bonds fall on U.S. jobs data") where competition for staff is strong. Some companies have managed to partially pass on higher costs to customers, even as [demand falls](https://www.financedigest.com/oil-falls-on-demand-worry-as-fed-make-or-break-moment-approaches.html "Oil falls on demand worry as Fed ‘make or break moment’ approaches"). IKEA, the [world’s biggest](https://www.financedigest.com/biggest-economy-in-the-world.html "Biggest Economy in the World") home furnishing brand, is one. It reported record-high annual sales as price hikes and [easing pandemic effects offset supply](https://www.financedigest.com/uks-j-d-wetherspoon-returns-to-profit-as-supply-issues-ease.html "UK’s J D Wetherspoon returns to profit as supply issues ease") shortages, weakening consumer confidence and its exit from Russia. But other companies are [struggling with high levels of unsold products that they may have to shift](https://www.financedigest.com/britain-says-eu-will-struggle-to-shift-euro-clearing-from-london.html "Britain says EU will struggle to shift euro clearing from London") cheaply. A lot of these retailers are running with elevated inventory levels, in [order to clear that you’d expect](https://www.financedigest.com/german-industrial-orders-slump-more-than-expected-in-august.html "German industrial orders slump more than expected in August") a lot more promotions and discounting. That’s not going to be good for the gross margins,” Amundi’s Callaghan said. Stephane Ekolo, strategist at Tradition in London said the trend of high inventories was likely to persist [next year](https://www.financedigest.com/suedzucker-expects-to-raise-its-sugar-prices-again-next-year.html "Suedzucker expects to raise its sugar prices again next year"). We are going to [witness more and more clear signs of demand](https://www.financedigest.com/plastic-caps-screw-caps-closures-in-demand.html "Plastic Caps & Closures Witness Strong Sales in Line with Convenience Packaging Trend; Screw Caps & Closures in Demand") erosion,” he said. [CHRISTMAS SHOPPING](https://www.financedigest.com/scam-special-how-to-avoid-christmas-shopping-fraud-this-year.html "Scam Special: How to Avoid Christmas Shopping Fraud this Year") Half of Britons [plan to spend less on Christmas this year](https://www.financedigest.com/3-factors-to-plan-for-in-2017-a-year-like-none-other.html "3 Factors to Plan for in 2017, A Year Like None Other"), according to market researcher Kantar, having already reined in spending last month with confidence close to a record low in the face of 10% inflation and a chaotic political backdrop. In the [euro zone](https://www.financedigest.com/euro-zone-inflation-seen-just-above-ecbs-target-in-2025-poll-shows.html "Euro zone inflation seen just above ECB’s target in 2025, poll shows"), where inflation is at a similar level, retail trade in non-food products fell 3% year on year in August, according to Eurostat. It is hard to be [positive on retail](https://www.financedigest.com/uk-retailers-turn-positive-on-sales-hopes-after-bleak-winter.html "UK retailers turn positive on sales hopes after bleak winter") spend with consumer confidence still falling to record levels and the cost-of-living crisis firmly hitting all,” said Trevor Green, Head of UK Equities at Aviva Investors. Our exposure to [retailers has remained highly selective all year,”](https://www.financedigest.com/spains-november-retail-sales-fall-0-6-on-year.html "Spain’s November retail sales fall 0.6% on year") he said, adding that he prefers discount retailers, which could benefit from consumers trading down. Global [retail sales](https://www.financedigest.com/valentines-day-spending-boosts-british-retail-sales-in-february-brc.html "Valentine’s Day spending boosts British retail sales in February – BRC") https://fingfx.thomsonreuters.com/gfx/mkt/lbvggrjnnvq/Global%20retail%20sales.png (Reporting by Joice Alves; Editing by Amanda Cooper and Kirsten Donovan) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---