Difficult trading conditions at the end of last year look set to worsen in the first quarter of 2008, according to the KPMG/SPSL Retail Think Tank.
Retailing’s state of health will not only deteriorate further but at a faster rate, says the group, which meets regularly to discuss demand, margin and costs within retail. Its latest report contains its most pessimistic set of predictions since it was formed in mid 2006.
The most negative impact for this quarter relates to demand. While retail sales in value terms will grow, the rate of growth will continue to decline. In the year ahead, the RTT believes consumers will continue to be hit by falling disposable income, declining consumer confidence due to ongoing concerns about the credit crunch, uncertainty in the housing market and lower bonuses.
Food will enjoy better demand than non-food, adds the group.
Retail margins will also worsen, and, again, particularly in non-food. Non-food margins benefited from the strength of the pound against the dollar in 2007, but as the RTT expects this to continue to reverse, margins will follow suit.
The RTT also expects that growth in costs will exceed growth in demand. As retailers seek to create value by improving customer service, staff costs could rise as they try to attract better people, it says.
Helen Dickinson of KPMG commented: “The tough year in 2007 looks set to become even harder in 2008. The RTT is predicting difficult conditions ahead with a further weakening of demand growth, erosion in margins and cost inflation outstripping top line growth. Demand is the most influential variable, so with the RTT stating that this driver is experiencing the most pressure, the first quarter of 2008 looks set to be challenging, particularly in the non-food sector.”