The Retail Health Index

Retail Health Index, Jan 2012

Following its January meeting, the KPMG/Ipsos Retail Think Tank (RTT) concluded that:

  • The deterioration in retail health seen throughout  2011 continued in quarter 4.
  • The Retail Health Index (RHI) dropped a further two points to 80 in the quarter, the fourth quarter in a row that the RHI has fallen.
  • Retail health is now considered to be poorer than it was in the depths of the 2008 banking crisis and recession.
  • In order to stimulate demand retailers cut prices and increased unplanned promotions in the quarter, which did stimulate demand, but at some costs to margins and profits.
  • For the first time since quarter 3 2008, costs are beginning to have a negative impact on retail health, reflecting the exceptional Christmas period investment associated with servicing multi-channel operations.
  • The majority of RTT Members predict that the rate of decline in retail health will accelerate in quarter 1 2012, plunging the RHI downwards by three points to 77, putting the state of retail health at its worst point since the RTT was formed in 2006 and generating a downward momentum not seen since the start of 2009.
  • Poor demand will impact health more than margins in the next quarter.
  • The RTT believes, however, that there will be little opportunity to re-build margins and hence they will continue to be detrimental to retail health.

Read the full press release >

The Retail Health Index (RHI): How is it assessed?

 Every quarter members of the RTT make quantitative assessments of the impact on retail health of demand, margins and costs* for the quarter just completed and a forecast of the quarter ahead.  These scores are submitted individually and aggregated for the RTT’s quarterly meeting.  The individual assessments are ultimately a combination of objective and subjective ones, drawing upon a wide range of hard datasets an softer qualitative material available to each member.

The scores are aggregated to form the RHI which is reviewed at that meeting and revised after debate if members feel it appropriate.  The RHI tracks quarter-on-quarters changes in the health of the UK retail sector and as such provides a useful and unique indicator of retail health.  The index “base” of 100 was set on 1 April 2006.  Each quarter, it assesses whether the state of health has improved or deteriorated since the previous quarter.  An improvement will lead to a higher RHI score than that recorded in the previous quarter, and deterioration leads to a lower score.  The larger the index movement, the more marked the shift in the state of health.

The RHI has two main benefits.  Firstly, it aims to quantify the knowledge of the RTT members in a systematic way.  Secondly, it assesses the overall state of health of the UK retail sector for which there is no official data.

*Glossary of terms

Demand

  • Demands for retail goods and services
  • Primary historical indicators – retail sales, volumes and prices

 Gross Margin

  • Sales less cost of sales
  • Cost of sales includes product purchase costs, associated costs of duty and other indirect taxes, discounts, markdowns and shrinkage

Costs

  • All other operational costs including freight and logistics, marketing, property and people