The outlook for UK retailers has never been bleaker, with the health of the industry expected to worsen to record levels before any signs of recovery.
That is the warning from the KPMG/Ipsos Retail Think Tank following its latest quarterly meeting this month. It says its RTT Retail Health Index is lower than the level recorded during the depths of the original banking crisis and recession, in quarters two and three of 2009.
The deterioration in health in quarter one of 2012 was not as significant as the RTT had originally forecast, partly due to higher-than-expected demand and margin pressures easing. But the next quarter looks set to be the gloomiest since the Retail Health Index was established. The combined effect of increased energy costs, raised fuel prices and higher borrowing costs, among other economic and financial influences, is expected to further dampen consumer confidence and demand.
Although inflation is on the decline, it is still above wage rises and many consumers are now dipping into their savings to keep up with increasing pressures on their household budgets and disposable income, says the RTT. The majority view of RTT members is that this cannot go on and that the rate of deterioration in health will increase.
The RTT notes that John Lewis is one of only a handful of UK retailers riding against the tide. Many others are struggling to compete for business, it says, resorting to heavy promotions, voucher schemes and discounting.
Summarising the RTT’s April discussion, Helen Dickinson of KPMG said: “What we expected to happen to the health of the UK retail sector in the first quarter looks to have been delayed until the second. The underlying economic and financial trends are pointing in the wrong direction for retailers, many of whom are struggling to generate sales, protect their margins and control their costs.
“The retail sector is undergoing structural change as our desire to consume ever-increasing volumes of goods diminishes and technological advances continue to change the way we shop.
“Future increases in selling prices are not an option for retailers to use to help them respond to these changes and maintain sales growth,” she went on. “Maintaining and improving profitability is a goal which is becoming harder and harder for retailers to achieve, and hence the state of health will continue on a downward trajectory for the foreseeable future.”