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UK retail health down 1 point in Q4 2017: Report

fibre2fashion.com 2018-05-17 00:00:00
The health of UK retail fell back in Q4 2017, says a recent report. The Retail Health Index (RHI) dropped one point to 80, taking it back to the level it stood at 4 years ago in Q4 2014. The detrimental effect of tightening margins, rising costs, a worsening economic climate and the fragility of consumer confidence mainly affected the sector.

Bucking the 5-year trend of retail health remaining stable between the third and fourth quarters, the KPMG/Ipsos Retail Think (RTT) believes that diminishing margins and rising costs outweighed any increase in demand from Black Friday sales and Christmas trading.

Of the three main drivers of retail health – demand, margin and cost, it was margin that had the biggest impact on retailers throughout the final quarter of 2017. With extended promotions and heavy discounting across the sector in the run up to Christmas, margins suffered.

Members acknowledged that economic conditions in the quarter had generally been better than originally thought, but high personal debt levels, the interest rate rise and Brexit uncertainty all conspired to soften demand and curtail spending at the tills.

The RTT discussed the poor performance of clothing and footwear retailers in October and November, with the unseasonably warm weather heavily restricting sales. This forced many into unplanned discounting after Black Friday to clear. It was agreed it was a bad start to the quarter, although there was a slight recovery during the cold snap in the weeks leading up to Christmas.

There was a big shift towards online shopping during Black Friday and Christmas. Whilst the boost to sales was encouraging, the additional cost of fulfilment from online orders squeezed margins even further, all on top of the original promotional discounting. The RTT agreed that retailers were in general better prepared in 2017, but further investment is required to create seamless multichannel experiences for consumers, as the rise of online shopping has fundamentally changed the way that retailers need to approach Black Friday and Christmas.

The trend in online shopping also resulted in the major e-commerce retailers taking a significant extra share of sales in the run up to Christmas, meaning that high street non-food retailers were left with a smaller market of customers to sell to than in previous years.

The RTT predicts that retail health is set to drop a further point in the first quarter of 2018. 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.

Whilst some macro-economic indicators were not as bad as expected in Quarter 4, uncertainty in the economy and the outcome of Brexit is still likely to further filter down to the high street in 2018, leaving consumer confidence in a precariously fragile position.

Dr Tim Denison, head of retail intelligence, Ipsos Retail Performance, said, “Online retailing has had a seismic impact on the way that retailers approach both Black Friday promotions and the Christmas trading period. High street footfall fell back sharply during the festive period when compared to last year, as many consumers avoided the bad weather and stayed home to complete their Christmas shopping. 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.”

“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,” said Paul Martin, head of retail at KPMG UK. (KD)

Fibre2Fashion News Desk – India

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