UK retail goes through its toughest spot since 2013

Dr Tim Denison, head of retail intelligence, Ipsos Retail Performance, summarises the reasons why this five-year low has been reached, recalling that “Online retailing has had a seismic impact on the way that retailers approach both Black Friday promotions and the Christmas trading period. To make the most of these increases in online sales, there has to be further investment in productivity and multichannel offerings in 2018, as retailers aim to reduce costs and improve margins, so as much profit as possible is squeezed out of any increases in demand.”

The health of the retail industry dropped by one point to 79 during the first quarter, hitting its lowest level since 2013, according to a KPMG/Ipsos Retail Think Tank (RTT) report accessed by the ‘Guardian’.

A further jump in costs and a failure to recover lost sales are expected to commit the sector to another one-point fall between April and June, the Retail Health Index study found.

Retailers need to work “incredibly hard and smart” to reconnect with consumers

Paul Martin, head of retail at KPMG UK, said retailers will have to work “incredibly hard and smart” if they are to entice customers. He summarised the situation highlighting that “There are some major issues affecting retailers, and those that don’t have their houses in order, from the boardroom to the shop floor, will find it hard to survive throughout what are some of the toughest trading conditions for a number of years.”

“There are multiple costs that will pile up in the coming months, including the implementation of the next stage of both the National Living Wage and automatic pension enrolment, last-minute compliance with GDPR regulations, and additional marketing costs to help promote discounts and buy sales,” added Martin.

James Sawley, HSBC’s head of retail and leisure, added: “While it is not possible to deny that retailers are finding it incredibly challenging, there are some operators that are seeing their business models flourish.

“The discounters, online fashion retailers, food retailers and small, niche retailers are posting strong results and maintaining their margins.”

At the beginning of the year the RTT predicts that retail health is set to drop a further point in the first quarter of 2018 due to sluggish demand and fragile consumer confidence combined with increasing oil prices.

On a related note, warned the think tank, costs will continue to build in Quarter 1 2018, with investment required in GDPR compliance and the rollout of the next stage of the National Living Wage.

Paul Martin, head of retail at KPMG UK, said: “Productivity will continue to be a key area for attention and improvement amongst retailers in 2018. Costs have been taken out of businesses in recent years, but it’s apparent that there is plenty of room for further improvement. There will also be additional costs that will impact on retailers, with GDPR compliance and Brexit contingency planning both requiring further investment in the coming months.”

Nick Bubb, independent retail analyst, said: “Heading into 2018, margins will continue to be intrinsically linked to demand, as retailers attempt to keep their tills ringing with deep discounting and ongoing promotional activity. Trading conditions are likely to worsen, as consumer confidence remains vulnerable, the housing market may start to struggle and people start to rein in the spending – all pointing towards a very tough time ahead for non-food retailers.”

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