Signs of retail sector stress increased on Thursday as Sir Philip Green, the fashion entrepreneur, warned of a fall in profits at his BHS chain. Meanwhile, DSG International, Europe’s second-biggest electronics retailer, issued its second profit warning this year.
Asked about BHS’s sharp reverse in 2006 – when profits at the homewares chain declined to £51.4m from £114m in 2005 – Sir Philip conceded “we’re going to have another one”. This follows a slightly improved operating profit in the year to March 2007 of £52.7m.
“What’s killing me is the underlying costs,” Sir Philip told the Financial Times. “Underlying sales, like my margins, are not too bad.” The BHS owner predicted “slow pain” for the retail sector. “This isn’t like a jab, it’s like continual jabs,” he said.
The return of clothing price inflation in China is increasing costs just as the consumer is reining back spending. “There’s no way we can pass anything on ... you have to absorb everything,” said Sir Philip.
“The market is probably as difficult as I’ve seen it: very challenging .. whether it be food retailers who carry non-food to general high street, nobody is getting excluded from this.”
Sir Philip’s forecast chimed with the warning from DSG, operator of PC World and Currys in the UK. It said full-year underlying pre-tax profits would be £200m-£210m against analysts’ estimates of up to £230m. Shares in DSG fell 8.5 per cent to 59½p.
At the World Retail Congress in Barcelona, retailers from Ikea, the world’s largest furniture chain, to Carrefour, Europe’s biggest supermarket group, have warned that last summer’s credit crisis is now apparent in consumer spending patterns across much of the developed world.