UK retail health index slips – and that’s not the whole story

A think tank has predicted that the UK retail sector could be facing its “worst run of health for five years”.

The KPMG/Ipsos Retail Think Tank says the health of Britain’s retail industry had fallen in the second quarter and is likely to drop even further in the third quarter. It says if this were to happen, it would represent three consecutive quarters of negative performance which has not been seen since 2012.

The Retail Think Tank (RTT) produces a retail health index based on aggregate figures for the sector. The index dropped by one point in the second quarter following a drop of one point in the first three months of the year.

The think tank members agreed that margin and costs rather than demand were the main causes of poorer performance in the second quarter, but they foresaw a weakening of demand in the third quarter.

Costs have risen as wages and business rates increase, and margins have been squeezed by heavy competition on the high street.

The index data are for the sector as a whole, (and their accuracy is entirely the responsibility of the retailers providing the figures). The picture for many retailers is more grim than the index suggests.

In June, when sales picked up, Helen Dickinson, chief executive of the British Retail Consortium commented: “Online continues to take the lion’s share of growth, although contribution from stores increased slightly in June as it seems shoppers headed out with specific purchases in mind, rather than just to browse.”

The BRC reported that over the three-months to June, online sales of non-food products grew 8.4% while in-store sales declined 0.7% on a total basis and 1.2% on a like-for-like basis, a better performance than the like-for-like 12-month average decline of 2.0%.

The BRC noted in June that “online sales are still a small proportion of total UK retail sales. Estimates based on Office of National Statistics figures show about 10 per cent of total UK retail sales (food and non-food) are achieved via the internet”.

Nevertheless, Paul Martin, head of retail at KPMG UK, commented: “The industry is undergoing significant structural changes. The retailers succeeding are those embracing change.”

Commenting on how retailers are adapting, Martin Newman, CEO at Practicology, and a member of the RTT, said: “In-store performance has improved, as operators continue to master the blurring of digital and physical retailing to create a seamless shopping experience.”

And Mel Taylor CEO of Omnico, a retail technology company, commented: “The whole of retail is experiencing profound climate change and retailers must use technology to adapt. We are now in the era of compulsive channel-hopping and smartphone use, when a consumer can interact with a brand in more ways than ever – online, through a mobile app, in the store or via social media.

“To thrive in this environment you need the technology to pull all this together so that consumers have the same, high-quality experience irrespective of the channel they are using. A single, cloud-based platform is required, that is far more intelligent with data and will work in the background synchronising all the channels to ensure that as a retailer you deliver on your promises. That means recognizing your customers and their rewards immediately and achieving full visibility and control of stock, irrespective of where it is.”