UK retail health sinks even further says KPMG/Ipsos Retail

By

Sandra Halliday

Published
May 7, 2018

It’s tough out there and a new report highlights just how tough. UK retailers are at their lowest ebb for half a decade but they haven’t yet reached rock bottom and could have further to fall, the latest KPMG/Ipsos Retail Think Tank report claims.

The Retail Health Index (RHI) dropped one point to 79 in the first three months of the year, which took it to its lowest level since 2013 and also marked a second consecutive quarter of decline.

But while issues such as the unseasonably warm October at the start fo the autumn season, heavy snow in February, and the record-breaking cold March at the start of the spring season weighed on many retailers, other fundamental issues also caused problems.

Rising personal debt and the move online have both dented footfall to physical stores and caused unprecedented distress in the retail sector.

And that means the RHI is expected to fall again in Q2 as rising costs such as higher business property taxes, rising rents, wages and higher-priced imports mean another one-point fall is predicted.

Paul Martin, head of retail at KPMG UK, urged retailers to work “incredibly hard and smart” in order to engage with customers or suffer the fallout. “There are some major issues affecting retailers, and those that don’t have their houses in order, from the boardroom to the shop floor, will find it hard to survive throughout what are some of the toughest trading conditions for a number of years.”

However, the RHI also said that wage growth starting to outstrip inflation (albeit only slightly) and strong employment figures would help the retail sector.

And it clearly needs help. 2018 has seen a large number of company failures, including giants Toys R Us and Maplin, while moves such as the proposed Sainsbury’s-Asda merger have raised fears of store closures.

The fashion sector hasn’t been immune with Bench and East both going under this year while New Look has entered a company voluntary arrangement (CVA) and House of Fraser plans to do so. The aim of both businesses is to close underperforming stores, and cut the rent bill for others.

But some retailers are still flourishing. The discount sector remains strong, despite problems at some well-known value-focused names. And pureplay fashion e-tailers like Asos and Boohoo continue to cut a swathe through the fashion sector. Smaller fast-growing companies including Joules and Quiz are also booming while established players such as Ted Baker and Superdry also seem to have found the magic formula.

We’ll hear more about whether the Superdry formula is continuing to work when it delivers a trading update this Thursday. And that will come on the same day as retail peer Next delivers its own update. Next has struggled with physical store sales declines but remains committed to stores as a key part of its business.