According to Ernst & Young, a London-based accounting firm, UK companies listed 313 profit warnings last year, 32 of which were made by retailers. Profit warnings made by UK businesses increased by £9.1% since 2018 and retail was the hardest-hit industry of all.
Political uncertainty to blame
According to Ernst & Young’s report, in the final quarter of the year, 22% of profit warnings made by UK companies referenced ‘political uncertainty’. Uncertainties regarding Brexit and cancelled or delayed contracts have made earnings unpredictable for UK retail businesses. December’s general election may also have put off retail consumers, adversely affecting their spending habits during the Christmas period.
Ernst & Young’s Restructuring Partner, Lisa Ashe, said: “Weak consumer confidence, rising costs and intense promotional activity have created an exceptionally tough climate for retailers, who face an additional race to adapt to rapidly changing shopping habits. Post-Christmas trading updates once again underlined the stark contrast between the retailers that are creating a compelling, engaging online and store offering and those who have fallen behind.”
The retail companies in trouble
Retail executives are now under extreme pressure to remain competitive in a quickly-evolving market as consumer spending habits change by the day, with less flexible companies suffering as a result. So far this year, profit warnings have already been issued by retail companies including British lifestyle brand, Joules Group PLC, and fashion retailer, Superdry PLC.
Predictions for 2020
The Head of Restructuring for Ernst & Young, Alan Hudson, has predicted that UK stocks are likely to improve slightly this year, but the threat of an influx of profit warnings remains to due lingering political uncertainty. UK companies, particularly in the retail sector, are advised to remain agile and flexible in the coming year as there are many political and economic changes ahead.
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