UK retail industry sees value rise, long-term conditions remain uncertain

31 May 2017 Consultancy.uk

Stagnant wages and unsustainable consumer debt means threaten the long-term spending growth of the UK retail industry.

A new report from consulting firm Alix Partners reveals that while the value and volume of UK retail sales growth have seen varying spurts and dips in recent months, there has been an overall rise in the UK retail industry of value to 4.7% and volume to 2.6%. The internet as a sales channel has continued to witness srong year-on-year growth meanwhile, increasing at almost 20%. While volume growth is up considerably on March last year, from 1% to just under 5% however, value growth seems to have peaked, following rapid growth in October last year when it topped 7%, falling to 2.6% by March 2017.

Averaged across the year as a whole however, value growth year-on-year stood at 4.7% and volume growth stood at 2.6%. The changes were, in part, a function of the deep devaluation of sterling, pushing up import costs and, therewith, prices in the UK retail market have seen steady increases.

The research notes that UK retailers have begun to shift the costs of currency changes to consumers, rather than continuing to squeeze their supply chains. The most recent data shows that such moves are occurring across the board, with particularly food affected – around 50% of the sector is sourced from overseas.

Value and Volume

The slowdown in volume growth, according to the firm’s analysis, points to an end of what had been a post-Brexit splurge in consumer spending. Now, as real wage growth stagnates in the face of inflation, household debt threatens to become increasingly precarious, while low employment looks set to put a lid on purchasing behaviour.

AlixPartner’s research also demonstrated marked differences between various of subsectors. Food saw a 2.5% increase in value and a 0.3% increase in volume in March, including a 5% increase in online sales – researchers impart the reasons behind the substantial gap on the fact the subsector being impacted heavily by higher import costs, which limited businesses additional profitability drastically.

Department stores saw increases in value of 2.9% and in volume of 1.5% in March meanwhile, though many major competitors continued to struggle with the continuing fall of pre-tax profits. Internet sales grew 13.6% year-on-year for the subsector.

The Fashion sector however enjoyed relatively strong growth, boosted by the collapse of struggling firms, enabling surviving competitors to consolidate their positions, reporting strong trading results. In March, value in the subsector is up 8.5% while volume increased 7.2%, and internet sales increased by huge 28.1% over the course of the year.

Household good providers saw value increase by 2.3% and volume by 1.3%. Competition in the segment remained tight however, with some incumbents branching into other segments to bolster their numbers. Internet sales were up 15.9% year-on-year meanwhile. 

Unemployment and Footfall Breakdown

The ‘other-store’ and ‘on-store retailing’ sectors saw considerably different results in March. The former saw value growth of 1.3% while also absorbing negative volume growth of 1.3%. The segments internet sales were up 19.9% year-on-year. The latter subsector, which is predominantly internet-based (more than 50%), saw considerable volume and value growth, at 20% and 16.9% respectively.

Overall value growth stood at 4.7% and volume growth at 2.6% in March, while internet sales across the six subsectors stood at 19.5% year-on-year.

The research notes relatively low levels of unemployment averaged across the country, at 4.7% – a decrease of 1.6% on average on the year previous, corresponding with the Office for National Statistics, which last week reported a 42-year high in employment. The North East continues to experience relatively high unemployment levels, at 6.4%, while the South East has the lowest level, at 3.4%. London has relatively high levels of unemployment, at almost 6%, while Scotland and Northern Ireland have an unemployment rate of 4.5% and 5.2% respectively.

In spite of the general growth in employment however, the research does not suggest retailers should expect a sustained boom in volume, or most importantly value – with real wage growth continuing to be low even in a tightening labour market. With inflation tipped to continue to rise, incomes are set to continue their fall in real terms – most likely limiting purchasing behaviour in the immediate future.

Researchers also noted that consumer borrowing levels may be reaching unsustainable levels, which, echoing the decade preceding the credit crunch of 2008 has created short-term boons for retailers, however the study suggests history may be on the verge of repeating itself, with longer-term negative economic consequences across the board predicted. UK consumer rights watchdogs are subsequently focusing increasingly on whether credit offerings and peoples’ ability to repay are aligned – suggesting retailers may soon see this stream of additional revenue stifled in order to protect consumers becoming overcome by debts.

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Lack of high street openings sees UK retail in precarious state

11 March 2019 Consultancy.uk

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.