Will it be a merry Christmas for UK retailers?

The UK high street can usually depend on a Christmas lift from the consumer, but this year with sentiment at low levels, there is bound to be some knock-on effect.

Christmas, a time usually spent celebrating, overindulging and consuming, looks set to be one of the most Scrooge-like affairs in recent memory.

Inflationary pressures are bound to have an effect on consumer spending, while the number of unemployed has also risen over the past year.

What does this mean for funds investing in the sector?

Retailers are present in a range of UK equity portfolios, from the FTSE 100-listed supermarket giants of Tesco and Sainsburys to AIM-listed Mothercare.

Many different companies in all sectors are facing difficulties at the moment. The UK economic situation is making life difficult for small and medium-sized businesses across the country.

But it’s not only the smaller companies that are facing problems.

Tesco – a favourite of Invesco’s Neil Woodford and Newton’s Tineke Frikkee – recently announced third quarter sales had declined as UK consumers battled “rising unemployment, falling real wages and increasing living costs”.

Of course, it’s unlikely that companies such as Tesco or Sainsburys will go to the wall, but there are certainly more difficult times ahead.

Some are predicting a rash of insolvencies over the Christmas weekend as retailers get hit by a double whammy of more subdued sales and rent deductions.

There were 410 retailer insolvencies during the third quarter according to research by PricewaterhouseCoopers, while RSM Tennon estimated that there were 8,896 retailers at risk of insolvency (Source: Insolvency Today magazine).

So you better not laugh, you might certainly cry, but it doesn’t look like Santa Claus is coming to town for the retail industry.