UK retailers continue to suffer from the high street crunch

16 July 2018 Authored by Consultancy.uk

Tough choices face the UK regarding Brexit, as negotiations plagued by governmental in-fighting continue to create economic uncertainties for people and businesses across Europe. At the same time, new technologies are threatening to disrupt the state of play further, presenting a generally challenging picture for the UK high street.

As the culmination of the two-year Brexit negotiation window swiftly approaches, the UK Government is still unable to offer a tangible outcome, beyond the dreaded No Deal scenario. Having broadly been flummoxed by the negotiating team from Brussels, the vague British strategy has largely been to suggest that the proverbial ball is constantly in the EU’s court, as opposed to answering questions posed by those who oppose Brexit. Meanwhile, a supposedly air-tight deal to secure unity between member of the UK Government itself on Brexit was rocked by a number of major resignations, including Foreign Secretary Boris Johnson and Secretary of State for Exiting the European Union David Davis, both of whom have long been spoken of as harbouring ambitions of displacing the beleaguered Prime Minister Theresa May to assume the office for themselves.

With the on-going drama seemingly yielding no concrete scenarios for the country to plan for besides an absolute worst case scenario, the public at large has been left in a state of confusion as to what their own futures hold. While consumer confidence in Britain continues to flag thanks to stagnant wages and a weakened pound, a shortage in skilled labour also looks set to be compounded, as educated EU nationals consider a mass exodus from the island nation with an ageing population. Amid this chaotic backdrop, businesses face the prospect of finding out at the last minute what the outcome will be – potentially meaning they will be left marooned in a country facing huge export and import tariffs, low consumer demand, and a critically sparse talent pool – rattling logistics planners and investors at many organisations.

Value and volume growth

As many companies try to figure out what their next move will be, a new report from AlixPartners has weighed up the most recent figures from the Office for National Statistics into sales and volume changes year-on-year as a whole, to estimate what may be in store for specific sectors of the retail economy in post-EU Britain. The study shows that year-on-year growth over the past 12 months was actually relatively positive, trending up slightly to just under 2% in terms of volume and just under 4% in terms of value.

The problem for many retailers is that sales value has still fallen since the start of 2018, with January on 4.5%, while sale volume has remained relatively flat. The year started off relatively cold and wet, which affected footfall, although improvement in online sales boosted the industry, as did a Royal Wedding and a relatively successful World Cup for England, both of which saw happier consumers return to stores, albeit for a short window of time before optimism faded away once more.

Subsector growth

Non-discretionary spending on food saw a 3.5% increase, although there is a shift within the industry to discounters, such as Lidl and Aldi. The sector was shaken up recently with the proposed merger of Sainsbury’s and Asda, as consumers become more picky about their buying behaviour.

Problems

Department stores such as Maplin have already faced continued problems relating to a shift toward e-commerce, hitting high street purchases. The segment say 0.7% increase in volume, while online shopping increased by 25.2%. Meanwhile fashion has seen a decline in volume, a fall of 1.5%, as consumers pay closer attention to their pocket and what’s already in the wardrobe. Online sales saw 24.4% growth, although returns in the segment remain a costly problem.

Subsector growth

Household goods saw strong value growth of 3.6%, but DIY and outdoor retailers were punished – Australian company Wesfarmers’ foray into the UK has been a costly debacle and saw Homebase sold to restructuring giant Hilco. Online sales in the segment have been relatively mute. The ‘other stores’ segment saw above average growth to volume figures at 1.8%, and just under par value growth of 3.2% - while internet growth for the segment was slow at 6.8%.

Pure play online companies saw solid growth to their figures, with volume up 6.4% and value up almost 10%. The segment benefitted from increased popularity of online shopping, as well as prevailing weather conditions. Boohoo was a standout player in the segment, with sales up by 53% for the three months to the end of May.

Unemployment and footfall breakdown

Unemployment in the UK continued to fall, with a further 46,000 jobs added in the three months to March. At 4.2% it is the at the lowest level since 1975. However, while an increase in employment has added potential consumers to the market, the continued stagnation of wages means that consumers across the board are scaling back their spending on luxury items as hard times approach.

The researchers also found that not all areas are reporting the same boost to employment. Northern Ireland is effectively enjoying full employment, at 3.1% unemployment, while the South East is close behind at 3.4%, however the North East still noting unemployment of 4.9%, which has resulted in a vicious cycle of a 2.1% decline in retail footfall, something which will almost inevitably lead to job losses. The nation’s capital also has surprisingly high levels of unemployment at 4.9%. Thanks to London’s reputation as a consumer hub for the UK and for tourists, footfall in the capital still increased a staggering 19.3%. However, reflecting strong demand for shopping in its iconic retail sector. The problem is that post-Brexit, some of this spending relating to travelling shoppers may well dry up.

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