UK Retail Health hits five year low

New figures released by KPMG/Ipsos Retail Think Tank (RTT) indicate that the UK is ‘set for the worst run of retail health performance for five years.’ The RTT Retail Health Index base of 100 was set on April 1, 2006. Now the index base is currently set at 81, one point less than the first quarter of the year.

“When looking at the retail sector over the past six months, the discounters and high-end retailers have delivered the best performance,” said Paul Martin, head of retail at KPMG UK on the findings. “Prolonged discounting and crumbling demand have contributed significantly to the prediction that we are set for the worst run of retail health performance for five years.”

The UK Retail Health Index has not improved since Q4, 2015

Despite June’s good weather generating an increase in consumer footfall and retail performance, it was deemed too late to ‘save the quarter’ by RTT. The decrease in the second quarter is predicted to fall further in Q3, presenting a consecutive decline of three quarters, which has not been seen since 2012.

The most detrimental impact on Q2 figures was demand, margin and cost according to RTT, with further impacts felt by the rise in National Living Wage and increased business rates. Fortunately retailers’ “rental costs have not been too much of an issue, with many landlords prepared to take a cut in rent to ensure units are occupied,” said Jonathan De Mello, lead retail consultant, Harper Dennis Hobbs.

The current uncertain political and economic situation following the Brexit vote has had a huge impact on consumer confidence. With trade deals still up in the air, areas which voted to leave the UK were found to have significantly pulled back on their shopping visits, with footfall decreasing 65 percent in total. Despite this, footfall in areas where the majority voted to remain increased 33 percent year on year, according to data from Coniq.

The Brexit has also had a positive effect on retail, as “shopping centres have performed well, and retailers in central London have benefited with an increase in international shoppers, as holidaymakers make the most of the weak pound,” De Mello added. The positives of Brexit are short lived though, with fears that “if consumer confidence continues to fall and shoppers become tentative with their spending, it is expected that retailers will react with aggressive pricing to tempt consumers back to the tills.”

Retailers are advised to keep cost increases to a minimum, whilst driving footfall and pushing productivity. With no room for mistakes, the decisions made over the coming months will set the retail agenda for the rest of the year. However, retailers may still be able to entice consumers with improved “in-store performance, whilst operators continue to master the blurring of digital and physical retailing to create a seamless shopping experience,” Newman added.

Many retailers are investing time to encourage sales through their e-commerce sites, using social media platforms for cheap marketing and promotion. In an article for The Telegraph published back in January, Business News Editor, Julia Bradshaw, discussed how online retail sales have increased by 27 percent over the past two years, whilst brick and mortar sales have fallen - leaving some hope for retail health in Q3.

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