KPMG/Ipsos: retail health dropped in Q3 but will bounce back in Q4

The health of retail in the UK dropped unexpectedly in the third quarter – the first time it’s fallen since the fourth quarter of 2012. But industry expert body KPMG/Ipsos Retail Think Tank (RTT) expects consumer demand will bounce back again in the fourth quarter,

KPMG/Ipsos: retail health dropped in Q3 but will bounce back in Q4

RTT said that of the three key drivers of retail health – demand, margin and cost – demand for non-food goods was particularly weak in the latter part of the third quarter, and alongside a poor showing from food retailers, was largely responsible for the overall drop.

Following positive results in July and August for non-food, unexpected warm weather in September impacted heavily on demand for clothing and footwear. The effect of a disappointing September was exaggerated further as it was a five-week month and was responsible for reversing the positivity of July and August.

But RTT predicts that the health of the UK retail market is set to improve. It believes that “strong employment, improving job security and resilient consumer confidence will drive demand through to Christmas. There are also nascent signals that wage rises will increase towards the year end, and with inflation remaining low, higher disposable incomes could come at a fortunate time for retailers,” it said.

“Those non-food retailers that have been able to invest in the race to deliver true omnichannel for Christmas, have done so, learning from the winners last year, and putting them in a stronger position to convert this demand into sales. In addition, retailers have had plenty of experience over recent years to avoid building large stockpiles for their Christmas campaigns only to discount heavily to stimulate late demand. The extra trading day this year over last will also help stave off panic measures and alleviate pressure on margins.

“Retailers are continuing to invest in backend systems, digital and technology. There will be a final push to get everything ready for Christmas, but this should be seen as a necessity, as any advancements will service any increase in demand.”

David McCorquodale, head of retail, KPMG, UK, commented: “The retail market really didn’t get the luck it needed with the weather in September. During the mild temperatures, we saw a multitude of mid-season discounting in an effort to kick start sales of winter clothing and reduce stock levels. Food sales have continued to go backwards and last quarter it was non-food propping up the UK retail market. With September being so poor, everyone has struggled and it has really impacted on the whole quarter.”

Dr Tim Denison, head of retail intelligence at Ipsos Retail Performance, added: “This coming quarter should see the results of a years’ worth of investment in omnichannel come to fruition. In an effort not to fall behind, the race for omnichannel was put high on retailers’ agendas early on in the year, following strong performances from the likes of John Lewis and Next last Christmas. With everyone raring to go and demand set to swing for the better, retailers should be in a great position to deliver positive results without having to discount heavily before Christmas.”

The RTT was founded by KPMG and Ipsos Retail Performance in 2006. It meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Every quarter each member of the RTT makes quantitative assessments of the impact on retail health of demand, margins and costs for the quarter just completed and a forecast of the quarter ahead. These scores are submitted individually, collated and aggregated in time for the RTT’s quarterly meeting.

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