Jul 19, 2017
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UK retail health hits low point, but high and low-ends prosper

Jul 19, 2017

UK retail saw a decline in its ‘health’ in Q2 and the falls are set to continue, according to the KPMG/Ipsos Retail Think Tank. It is predicting three consecutive quarterly falls this year with expectations that the third quarter will also be weak.

The high and low-ends have done well in UK retail but many in-between have struggled

KPMG’s retail head Paul Martin said that the best-performing retailers have been at either end of the price scale in the past six months. Premium and luxury stores have benefitted from their affluent client bases and from the wave of tourists arriving in the UK to take advantage of the weak pound. Meanwhile discounters have also ridden the wave with their value offer being seen as an alternative by consumers who have had less discretionary income to spend.

The prediction of a third quarter of falling health comes amid talk of “crumbling demand” and the ongoing need for markdowns to tempt shoppers to buy, despite footfall staying fairly resilient.

KPMG/Ipsos’s Retail Health Index was launched 11 years ago with a level of 100 and in Q1 this year it was 82. It dropped to 81 in Q2. A third consecutive fall would make it the “worst run of health in five years,” the report said, as a basket of issues from rising costs for stores to inflation and general consumer caution take their toll.

But while luxury and value stores have been the winners in the battle for consumer spend, for those squeezed between these two extremes, ties have been tough.

While consumer caution has been notable for some time, retailers are now seeing the end of hedging periods that protected them from cost increases when the pound fell sharply a year ago. That means they now need to increase prices or absorb the extra costs at the same time as they are dealing with rising business rates and the higher minimum wage.

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