UK store numbers could fall 20%, fashion to suffer most, Brexit an issue says study
today Oct 30, 2018
UK store portfolios could be reduced by as much as 20% as the migration to online, Brexit uncertainty and increasing consumer caution continue to bite, according to a quarterly update from KPMG/Ipsos Retail Think Tank (RTT).
The RTT believes the number of retailers operating on the high street is at overcapacity and that the trading period in the lead up to Christmas is going to be the most critical the retail industry has seen in a decade, with fashion and department stores set to struggle most.
The so-called golden quarter is historically the most important time of the year for retailers to 'get it right’, but the RTT said that with Brexit looming, this could be the most critical Christmas period since the financial crash a decade ago.
RTT members include retail analyst Nick Bubb, Ipsos Retail Performance’s Dr Tim Denison, Jonathan De Mello of Harper Dennis Hobbs, Martin Hayward of Hayward Strategy and Futures, GlobalData’s Maureen Hinton, James Knightley of ING, KPMG’s Paul Martin, Martin Newman from Practicology, James Sawley of HSBC, and Nielsen’s Mike Watkins.
They think this quarter could be the catalyst for struggling retailers to come under serious pressure, despite it traditionally being the period that’s responsible for a big chunk of profits, as the need to discount early due to Black Friday and consumer expectations of deals will dent margins.
Looking back to the financial crash, although the UK economy suffered more than it has done of late, retailers weren’t as pressurised as they are now.
That’s partly because online wasn’t as big as it is now, but the RTT also said that Brexit is having a big impact.
Martin Newman, CEO of Practicology, said: “A relentless focus on trading will be required in the next three months by retailers who want to go into the unknown of Brexit in the New Year with businesses that are strong enough to survive further upheaval.”
The RTT also said that retailers must make the most of any increase in demand this quarter and ‘make hay while the sun shines’, as the uncertainty of Brexit could reduce consumer demand and retailers’ costs and margin.
Dr Tim Denison added: “With all the uncertainties building around Brexit, and the UK’s trade agreements, the months ahead will be defining times for the industry, challenging the acumen of even the very best leadership teams in retailing.”
The think tank’s members also acknowledged that there’s a “seismic correction under way within non-food retailing” with HSBC’s James Sawley saying retail is “undergoing a once-in-a-generation correction in the supply base of physical retail stores .”
And this is what could lead to further cuts in store numbers. Maureen Hinton, group research director at GlobalData, said: “The UK retail market, along with many other major economies in the west, is suffering from maturity of demand and overcapacity of supply.” But she added that there is an upside as non-food retailers have been able to step into the gaps provided by rival companies failing. “The survivors are picking up the spend that would have gone to these weaker competitors,” she said.
The RTT said the highest risk of overcapacity on the high street is being seen with department stores and fashion retailers and they’re under heavy pressure to succeed in the coming months. Hinton thinks the toughest times will be faced by “the mass middle-market fashion retailers and department stores that have little or no unique offering.“
The result, according to Jonathan De Melo, head of retail consultancy at Harper Dennis Hobbs, is that “retailers will likely be locked into a fierce downward spiral of discounting, which will start a few days before Black Friday and continue throughout the run up to Christmas. This will clearly serve to erode margins – which is the opposite of what retailers need right now – but if they don’t discount then the alternative could be much worse.”
RTT members believe that many non-food retailers have “spread themselves too thin, trying to be everything for everyone.” This makes them vulnerable and lets “smaller, more agile operators take share from the bigger players as they are able to deliver a specific, niche proposition to consumers.”
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