The Retail Think Tank

News Releases, White Papers and Timings of the Next RTT Meetings

Please use the dropdown menu below to view White Papers, News Releases which include the RTT Retail Health Dashboard and Dates of Future Meetings of the RTT.

Future RTT Meeting Dates
17th April 2008
15th July 2008
14th October 2008

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Click to select a news article Retail Health Is Deteriorating But It’s Not In ‘Free Fall’ States Industry Think TankRetail Think Tank Says Discounting is Damaging RetailRetail sector gloom set to continue in 2008, according to industry panelRetail Think Tank Warns of Business Failures in DownturnRetail Think Tank Says Quarter 3 Will Hit Retail with Double WhammyRetailers Do Better Than Expected in Q1 But Spring Has Come and GoneRetailers congratulated over Christmas performance but problems loom in 2007Christmas trading will not deliver the respite that UK retail cravesRetail Think Tank warns of fragile and nervous prospects for retailKPMG and SPSL Jointly Launch The Retail Think Tank

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The latest RTT Output:

Retail Health Is Deteriorating But It’s Not In ‘Free Fall’ States Industry Think Tank

24/04/2008

-Retail Think Tank predicts further pain on all fronts in second quarter but warns of dangers of ‘talking it down’-

The latest meeting of the KPMG/SPSL Retail Think Tank (RTT) – the group of leading industry figures which provides a non-partisan guide to retail sector health – revealed that the difficult trading conditions it had predicted for the first quarter of 2008 were not quite as bad as it had forecast, but warns that the next quarter looks bleaker. The panel was keen to point out that whilst the future health trend is downwards, the depth and duration of the decline is far from clear and we should guard against talking ourselves into a worse state than it would otherwise be.   

The RTT meets quarterly to discuss and report back on the three key drivers of health – demand, margin and costs – in order to form a view of the outlook for the sector. Deliberations from the RTT’s latest meeting included:

·         Acknowledgement that the RTT’s predictions for quarter 1, 2008, issued in January 2008, were largely correct, though not quite as bad as anticipated.  That had been the first time since the RTT was formed that movements in all three drivers were expected to have a negative impact on the overall state of retail health in the UK.  

·         Demand was somewhat stronger than the RTT had predicted in January and February, predominantly driven by food sales holding up well.  March was weak, driven by the early Easter, poor weather and the worsening economic backdrop. This was borne out by the latest British Retail Consortium-KPMG report for March which showed the first like-for-like fall in retail sales for two years.  The health of the retail sector has therefore undoubtedly deteriorated, as predicted, in the first quarter.

·          For the next quarter, the RTT believes that the state of retail health will deteriorate further and at a faster rate but the rate is certainly not precipitous.  One member aptly commented that, “retail has caught ’flu, not pneumonia”.

·     The RTT blamed the projected worsening rate of decline on the impact of demand and margins , but added that costs were still having a negative bearing.  Consequently the RTT has produced its most pessimistic set of retail health predictions since it was formed in mid 2006. 

·     Although all the RTT members agreed that demand would weaken further in quarter 2, they were divided as to how much and whether retail sales in value terms will grow or decline in the upcoming quarter.  However, even the more optimistic were clear that the rate of any possible sector-specific growth (most likely to be seen in food) will continue to decline.  The more pessimistic considered that the outlook was comparable to that seen in 1973/74 and the early 1990s.

·     In the coming months, the RTT believes that even those consumers who have, until now, ignored or shrugged off the effects on their shopping behaviour of job losses, falling disposable income; the credit crunch; falls in the housing market and lower bonuses, will start to take notice.  The recent cut in the Bank of England base interest rate to 5% will fail to stimulate demand in the short term.

·    The group expects that margins in the retail sector will continue to deteriorate.  In the last few months it has been the non-food margins which have been worst hit.  However, the RTT believes that food margins will also come under increasing pressure in the next quarter due to increasing commodity prices.

·     The RTT noted the many pressures on margins; including projected weakening of sterling against the euro and to a lesser extent the dollar, and local inflation in China. Consumers are also expected to become more promotionally driven and hence opportunities for retailers to raise prices will be virtually non-existent.  This, coupled with pressure on demand, leads to a double whammy for retail margins.

·     The RTT expects growth in costs will continue to exceed growth in demand in the next
quarter.  The RTT noted the difficulties faced by retailers attempting to cut costs; the only easy way is to cut staff and that can seriously affect the business in other ways.  However, job 
losses in the sector are expected to amount to over 100,000 in 2008 and 2009,
combined.

Vicky Redwood of Capital Economics summarised the thoughts of the RTT: “The fact that demand did not deteriorate quite as fast as we had predicted in quarter 1, with overall spending propped up by strong food sales in January and February, means we should take the clear lesson that consumer spending is like a supertanker; hard to slow down or change course, but when it does….”

Overall, the tough start to the year looks set to become even more entrenched as we go forward into the second quarter. The RTT is predicting increasingly difficult conditions ahead with a significant further weakening of demand growth, margins under ever greater pressures and no respite in sight from increasing cost pressures.  Demand is the most influential and this quarter’s strongest variable, so the RTT is keen to stress that although the situation is serious it’s certainly not yet critical and talking it down will help no-one, least of all retailers.”

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