Skip to main content
Article

Retail sector update 

Risk & Analytics|Future of Work|Risk Management Consulting
N/A

March 4, 2020

Since records began in 19951 retail sales growth is now at an historic low, why is this?

Retailers, in particular non-food ones, have to offer significant discounts to attract shoppers. The combination of deep discounts and significant cost pressures (such as the persistent rises in business rates and the National Living Wage, the introduction of the Apprenticeship Levy and the automatic pension enrolment) have cut into profit margins.

Overall macroeconomic trends


It’s a tough time
  • Spending is weak
  • Business costs keep rising
  • Keeping up with digitalisation and the structural change within the industry is challenging
Changes and uncertainty are not going away
  • Regardless of the Brexit deal
It’s not all doom and gloom
  • Retailers with the right offer and strategy are doing very well

Brexit uncertainty is contributing to slow growth

UK GDP grew at about 1% in 2019, below what was expected in the beginning of the year.2 Furthermore, UK has seen significantly weaker growth in 2018 and 2017 compared to the rest of G7 economies.3

UK GDP grew at about 1% in 2019

Brexit uncertainty appears to be largely responsible for the slow rate of growth. With no clarity around future trade agreements, investments are being put on hold – Business investment in sterling terms is below the level of Q4 2017.Many organisations have had to divert resources for contingency planning, rather than spending on investment or development. And retail partners in the EU are waiting for clarity about how to move forwards too.

These days, with lower risk of a no deal Brexit, uncertainty in the retail sector has eased a little. But we’re unlikely to have much more clarity before December 2020 because even a best-case scenario means trade deals won’t be negotiated until then.

Online retail is here to stay


Retailers need to embrace online

18% of sales (26% of non-food sales and 8% of food sales) in 2018 were made online compared to just 3.4% in 2007.4

The rise of online shopping means retailers must redefine the concept of what a store is. Shop floors are becoming experiential showrooms, fulfilment centres and places to hang out, blurring the boundary between online and offline.

Traditional retailers will need to work with digital platforms

Some organisations are bringing online and offline retail together and working alongside digital platforms to enhance the service they provide. For example, the partnership between Ikea and Task Rabbit means customers can have their furniture assembled for them rather than doing it themselves. While the partnership between McDonalds and Uber Eats means McDonalds can now deliver.

Experience-led store

In September 2019, Samsung opened a new ‘store’ in London King’s Cross with the strapline ‘It’s everything a shop isn’t.’ It’s a place you can #DoWhatYouCant. The ‘store’ doesn’t sell products; instead it presents Samsung’s new products, allows shoppers to engage with technology and is a centre of excellence for customer care.

Speed and convenience changed consumer behaviour and expectations


Customer control

Customers have much more access to price comparison information and alternative products. This gives them more overall control of pricing

Social media

Social media can make or break a retailer’s reputation. A critical mass of positive comments can lead to an exponential increase in exposure and customers.

On the flip side, any negative experiences can also be shared instantly on social media. Before the days of social media, a minor complaint could have been discreetly handled in-store. Now, it can be shared virally to a much wider audience. This can influence other customers’ perceptions and, thus, behaviour, even if the initial complaint had little to do with the product offered.

Environmental and sustainability

With the rise in awareness of environmental impacts of our consumption, customers are changing their shopping habits of both food and non-food. As a result, they are putting pressures on retailers to ensure supply chain sustainability and are demanding products with a lower environmental footprint.

Fast fashion has faced scrutiny and has been met with campaigns like Reduce, Reuse, Recycle and Oxfam’s Second-hand September.

With the zero-waste movement growing, retailers should be mindful of the environmental impacts of their products and packaging and highlight examples of their best practice.

Insights from Retail Day 13 November 2019
Speaker Dr Liliana Danila Opinion
Economist, British Retail Consortium

Footnote

1 https://home.kpmg/uk/en/home/media/press-releases/2019/10/brc-kpmg-retail-sales-monitor-september-2019.html

2 https://tradingeconomics.com/united-kingdom/gdp-growth-annual

3 https://www.ft.com/content/cf51e840-7147-11e7-93ff-99f383b09ff9

4 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi

Contacts

Kelvyn Sampson
GB Industry Practice Leader – Retail and Leisure & Hospitality

Joel Morrissey
Retail Practice Leader - London

Related Services

Contact Us