European Perspective

As the headlines talked of a summer meltdown in European stock markets following the U.S. mortgage debt crisis, it just seemed like another thing to end the season on a down note.

The mad weather—heatwaves in mainland Europe, floods in the UK—looked to have put a real damper on trading across all categories. But heavy discounting by retailers in response to the poor sales actually had the effect of boosting the figures for July, in the UK at least.

According to the UK's Office of National Statistics, sales edged up by 0.7 percent compared with June—the biggest rise since February—and 4.4 percent higher than July last year.

The ONS figures are the final numbers each month following the Confederation of British Industry—thought to be the least accurate by the industry because they are too early—and the British Retail Consortium's, which are the best liked. The BRC figures for July suggested same-store sales up by just 1.2 percent, less than the 3.2 percent recorded in June, and far short of the 3.4 percent increase recorded in July 2006.

The influential retail analyst Richard Ratner, vice chairman of broker Seymour Pierce, is pretty down on the retail sector. The increases, small as they are, were at the expense of margin, he maintains, and with the highest interest rates being experienced for some years, he is predicting more gloom to come for the sector.

Licensed product is suffering along with all product. While home is performing relatively well, fashion, footwear, and sportswear has been badly hit by the weather, and last summer retailers were already up against the World Cup—which kept people at home watching TV rather than shopping. It was too hot to shop in Europe anyway last summer.

And apart from the general malaise in stock markets, retail stock has come in for a particular bashing. Debenhams is performing miserably even against its fashion retail rivals, the difficulties at Sports Direct have generated many column inches, and the long, drawn-out possibility of a takeover at Sainsbury's just would not go away. Aren't Europeans meant to stop work and go on holiday in the summer?

More Bad News

Meanwhile, the supply chain has also been under pressure. In the UK one of the now frequent stories about retailers using cheap labor in developing countries was splashed across the front page of The Sunday Times in mid-August. This time it was Topshop's turn and the newspaper juxtaposed photographs of Arcadia owner Sir Philip Green quaffing champagne with his wife Tina against photographs of clothing factory workers in Mauritius.

The garments named in the piece included those in the Kate Moss for Topshop collection, one of the highest-profile license deals this year. (See License! Global's August cover story.) Green, pugilistic as ever, has hit back. He was reported to have claimed the article was a personal attack and that he had not been given a chance to reply before publication. Indeed, it is the case that Arcadia fascias are not signed up to the Ethical Trading Initiative, but it has put in place a third-party auditing system for working standards in the overseas factories it uses.

Arcadia, and all retailers, need to reassure their customers that they do care about the working conditions of the people who work for them—however indirectly.

And then, of course, there was the international Mattel recall. One toy industry pundit I saw in a television interview said that he thought there would be no consumer backlash against Mattel, or toys in general. He believed that when an industry was seen to react quickly to such a problem, it actually boosted confidence among consumers. Let's hope he's right.

Roll on, autumn—it can only get better for the industry in Europe.