Despite the near stagnant wage growth, consumer sentiment is generally more positive than in 2014, research by consulting firm Kurt Salmon show. This slight rise in confidence is, however, not mirrored in increased consumer spending. This, according to the research, follows from the stagnant disposable income, something some retailers themselves are implicitly perpetuating.
In a recently released report by from Retail Week in association with Kurt Salmon, the UK retail market is mapped*. The report, titled ‘Retail 2015’, surveys 25 UK retail executives for their current market sentiment as well as their best projection for where their business is going in the coming years. The news from both retailers and consumers about the coming years is a mixed bag.
The retail executives, according to the report, remain unconvinced that the current positive UK economic indicators mean that their businesses will benefit greatly, with 75% projecting modest growth for the 2015 period. This results from a continued concern about the disposable income of consumers. “We have more people in employment but they haven’t had any salary increases that they would have traditionally been used to,” says the Managing Director of a grocery retailer. “I think the general picture for retail will be very, very tough,” the Chief Executive of a discount chain adds, with low growth in wages cited as a critical factor affecting consumer spending.
Consumer and executive sentiment
In a survey of 1,000 consumers, their financial position was found to be up on balance, with more consumers (29%) feeling more confident about their financial position than a year before, compared to 25% indicating being less secure. Their confidence in the economy is also generally positive, with 31% saying they are slightly or significantly more confident, 48% saying they feel the same and 21% feeling slightly or much less confident. The slight positive sentiment is reflected by the executives, who gouged the general sentiment among consumers to be positive – with 63% believing that the mood was slightly more positive, 25% the same and 12% worse.
The slightly improved financial status, and the general agreement among executives of consumer sentiment being positive, correlates with a slightly positive projection for retail sales by the executives, with 16% forecasting flat sales figures (versus 60% in 2014), and some 72% expecting sales to be slightly better (up from 36% last year); in total this means that executives expecting to see a slight or much better sales figure has jumped to 84% from 40% last year.
Stagnant disposable income
One of the chief concerns for the future of growth in the retail sector is tied to the disposable income of consumers. According to the report, the longstanding gap between earning growth and inflation is only now starting to correct itself, thus consumer confidence is not yet showing in material pounds. In what the report highlights as a “perceptive” remark about the reason for a depressed level of disposable income, one executive reveals, “We are certainly guilty, and I expect many of our peers are guilty, of keeping pay very low. You cannot forever expect people to work harder and do more and still expect not to pay any more. That is a challenge that all of us retailers need to have in our sights next year.”
* Consultancy.uk also highlighted the development of an omni-channel strategy by retailers, showing that only 5% is ‘omni-channel proof’.