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UK retail warned to expect a challenging 2018

Jan 15
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UK retail warned to expect a challenging 2018

Consultants working in the UK retail industry are likely to find themselves helping businesses to navigate choppy waters in 2018, research has suggested.

Predictions from the KPMG/Ipsos Retail Think Tank (RTT) indicate that the sector will "flatline at best" during the coming year, with a strong possibility that the outlook will "get worse before it gets better".

Key challenges will include consumer spending - with slow wage growth and relatively high inflation coming together to constrict disposable income - and ongoing uncertainty around Brexit.

Past trends

Looking back at the past year provides some insights into how the industry could evolve and perform in 2018.

RTT members noted that 2017 was "unquestionably a challenging year for retail". The industry was affected by wider economic issues, with predictions suggesting that economic growth is likely to be only 1.4 per cent for the year, lower than at any time since the nadir of the financial crisis in 2009.

Martin Newman, chief executive of multichannel and ecommerce consulting firm Practicology, referred to the downgraded productivity growth forecast in the Autumn Budget, as well as the Institute of Financial Studies' suggestion that average UK earnings could be lower in 2022 than in 2008.

These challenges are likely to result in lower disposable income for consumers, and consequently reduced demand for retailers.

Given the headwinds restricting growth in the sector, Paul Martin, RTT co-chairman and UK head of retail at KPMG, predicted that "winning market share will remain a core focus for businesses".

This could involve consolidation and partnerships between companies, continuing a trend that was prominent last year.

Ongoing change and challenges in 2018

One of the key points of agreement among RTT members was that 2018 will see the continuation of ongoing issues in the retail industry, as well as some new challenges.

Structural change is likely to be a particularly significant trend, as discussed by Mr Martin.

"The UK retail sector continues to undergo fundamental structural change," he said. "With online now reaching close to 20 per cent penetration (28 per cent in non-food) of all retail transactions, the store-based business model (in its extent today) is threatened."

Regulation and compliance were also highlighted as big concerns for retail businesses in 2018, perhaps most notably the General Data Protection Regulation, which is due to come into force in May.

The RTT members suggested that, while this legislative change will represent a big compliance hurdle, it could also give retailers the opportunity to work with their data more effectively and review the customer insights at their disposal.

Failing to comply with the regulations could carry a big reputational risk, as well as financial penalties that could be as high as four per cent of global revenue.

Continued uncertainty around Brexit could also pose a major challenge in the coming year, with Mr Newman pointing out that this issue is "undoubtedly affecting consumer confidence, which is clearly on the wane".

James Sawley, head of retail and leisure at HSBC, commented: "As the headwinds facing the sector continue, there will no doubt be winners and losers, leading to further administrations and consolidation."

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Image: funstock via iStock

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