An independent view of the UK retail market from Verdict
Retail in the UK is undergoing a fundamental evolution, one that was inevitable, was accelerated by the recession and is forcing retailers to become much more professional.
Retail growth over the decade up to 2009 was boosted by deflation and low inflation in virtually all non-food sectors. This factor, combined with increases in household disposable income and easy credit, enabled consumers to buy more and more products with very little impact on their overall income. Yet, despite this, retail growth has been slowing; it halved to an average 2.8% in the decade after the millennium and has declined each decade since the 1960s.
Therefore, as a mature sector, with the prospect of an ageing population dampening demand further, retail was inevitably going to become more challenging. Moreover UK consumers have not only cut back on their shopping as confidence has fallen but have also changed their style of shopping.
Rising utility bills, transports costs, higher education costs and actual job losses (or the prospect of them) have all led to consumers having less to spend and less willingness to spend. Rather than rack up more debt they are paying it off, or saving. And when they do buy, price inflation means they buy fewer items and are far more selective about their choices. Therefore if a retailer is not first choice it is unlikely to get any share of spend.
Sectors and retailers dependent on the housing market have suffered the highest number of casualties. Between them, since 2008 DIY, electricals, furniture & floor coverings and homewards have seen a £7.9 billion reduction in consumer expenditure. Sectors that continue to grow are those related to family and personal needs, food & grocery, clothing & footwear and health & beauty, but even in these sectors retailers with a single specialism, like footwear, are under pressure, finding it hard to drive the volumes necessary to cover rising costs.
Retailers therefore need to adapt to a new low growth, inflationary environment. No longer can they rely on opening more space to drive growth, now it is a case of having an efficient multi-channel model that incorporates the optimum range and number of stores in the right locations, combined with e-Retail and m-Commerce operations. Future success will be based on being far better than competitors: growth will come at someone else’s expense, therefore retailers need a strong brand and a distinctive proposition that generates constant customer loyalty. Furthermore, managing operations and costs to generate maximum efficiency and flexibility will be essential.
We at Verdict expect 2012 to be another tough year for retail with little improvement until 2013 (global financial traumas permitting). Whatever the outcome the new normality will be low growth and low volumes with little room for error.
