Retail Think Tank annual review 2018-2019

Featuring the state of retail health, prospects for the forthcoming year and a culmination of Retail Think Tank whitepapers, the annual review covers everything you need to know about the retail market in the UK.

Review of 2018

2018 marked yet another troublesome year for the retail industry, which had already been facing strong macroeconomic and geopolitical headwinds, along with the barrage of longstanding structural upheaval, driven by ever-changing and varied consumer behaviour.

The troubles began right from the year’s starting blocks, with the KPMG/Ipsos Retail Think Tank’s (RTT) health assessment in the frst quarter recording the lowest score (79) in fve years. This followed disappointing Christmas trading, and marked the second consecutive deterioration in retail health – a reality many retailers were understandably reluctant to digest.

Refecting on the frst quarter’s performance, the RTT members pointed frmly to lacklustre non-food sales as the primary drag. They added that adverse weather – including the ‘Beast from the East’ – soaring levels of personal debt which dis-incentivised spend; as well as one of the poorest year-on-year footfall fgures, all added to the challenges faced by the industry. While the grocery sector did counterbalance overall performance to a degree, much of the growth was infationary, with volumes falling in light of increased pricing.

The adverse conditions proved too much for many players, with a number of sizeable and established retailers entering administration – further reinforcing the deteriorating health of the sector. Whilst many of the casualties had been visibly struggling for some time, the turbulent trading conditions proved to be the straw that broke the camel’s back. Meanwhile, for those that remained, fckle demand, pressurised margins and risings costs continued to be issues in need of urgent attention. So too were issues including: heavy discounting in a bid to ‘buy’ consumer demand, poor stock management and ineffcient supply chains.

As 2018 progressed, the think tank’s members showed concern about retailers’ ability to navigate rising costs – including National Living Wage rise, increased commodity prices and automatic pension enrolment – especially against the growing pressures on their margins. However, while these concerns certainly pulled at the heels of many players, events like the Royal Wedding and Football World Cup, coupled with their ‘feel-good’ factor, provided a much-needed boost which ultimately prevented retail health deteriorating further. Retail health instead stagnated in quarter 2, with the RHI holding at 79.

By the third quarter of 2018, retail health in the UK had failed to make any further traction, with yet further stagnation and the RHI once again remaining static at 79 – the tenth consecutive quarter of fat or negative performance. The RTT members were all too aware of how volatile consumer demand had become, and how costs and margin pressure continued to plague retailers.

Having said that, there was signifcant divergence in the performance online versus the high street, and between food and non-food, and some retailers were faring better than others. Grocers and apparel beneftted from the extended summer weather, particularly at the beginning of the quarter, but a lack of engagement in key events like back-to-school, quickly overshadowed any traction made. Refecting the lack of improvement in health, the think tank thought that the quarter was simply less bloody than it could have been, resulting in rather benign performance overall.

With many retailers yielding a signifcant proportion of their annual sales in the all-important ‘golden’ quarter, high hopes were understandably placed on the fnal months of 2018. Unfortunately, October proved to be quiet, whilst November also proved disappointing, despite Black Friday and Cyber Monday. And according to the BRC-KPMG Retail Sales Monitor for the month of December, it was the worst witnessed in a decade.

The RTT was in agreement that health in the fnal quarter of 2018 was poor, but they also noted the slew of Christmas trading reports that pointed to the positive impact of the late Christmas rush. Despite providing some relief, it wasn’t enough to turn the tide on deteriorating health of the quarter overall, and the RHI fell by one point to 78 – perilously close to the historic low of 76 witnessed during the double-dip recession 2012/13.

Looking to the year ahead, the think tank predicted further deterioration in the frst quarter of 2019, but stressed that much still depended on the outcome of Brexit negotiations and subsequent impact on retailers and consumers alike. Similarly, in the RTT’s broader look ahead to 2019, the members believed that the struggle would intensify, regardless of Brexit.

The RTT members felt that, Brexit aside, the industry still needed to address changing consumer behaviour; the over supply of physical stores; high levels of legacy debt, as well as increased regulatory and compliance costs, to name just a few long-standing issues. Retailers would also need to continue navigating macro-economic and geopolitical challenges, and needed to address the lack of talent that could inject much-need change into the sector. Many of these factors are at a retailer’s disposal, and as such the RTT stressed they need to focus on “controlling the controllable” in the year ahead.

The complete catalogue of annual reviews can be downloaded to PDF below or on the Retail Think Tank website.