Retail Brief: European Retailers set out their stalls for the Golden Quarter
This golden quarter will be crucial for European retailers' prospects for 2025. Retailers' hits and misses this festive trading season will not only determine their financial performance for the 2024 fiscal year, but will also shape their strategies, operating plans, and investment budgets for next year.
The fourth quarter of the year--which encompasses Black Friday and the Christmas sales--is also known as the golden quarter because it can account for as much as one-third of sales and up to half of the annual profits of retailers of discretionary products, including electronics, apparel, jewelry, toys, and gifts. According to the British Retail Consortium, one-third of consumers plan to take advantage of offers on Black Friday and Cyber Monday this year.
What's Happening
European retailers are pinning their hopes on strong sales this festive season. S&P Global Ratings expects rated retailers in Europe to increase their year-on-year fourth-quarter sales by up to 2%-3% on average compared to the same period last year, supported by a robust labor market and higher household disposable incomes.
However, we expect sales growth to vary considerably between individual players, given the wide range of business models and market positions among rated retailers in Europe. This season, we expect that retailers will substantially increase promotions to boost volumes as unit prices remain elevated.
Why It Matters
One-quarter of rated European retailers have either weak or vulnerable business risk profiles and over one-third have highly leveraged financial risk profiles. These retailers' ability to protect their earnings and free cash generation will be tested as competitive trends continue to intensify due to the proliferation of e-commerce-based marketplace offerings while consumers remain highly price-sensitive.
Moreover, many European retailers face higher capital expenditure requirements to upgrade their stores and omnichannel offerings, having moderated their spending over the past three years to preserve cash, while the cost of renovations has increased substantially. While e-commerce and mobile commerce will remain the main engines of growth, we anticipate that bricks and mortar stores will see a resurgence in footfall this festive season as consumers seek a more immersive in-store experience.
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