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The KPMG/Ipsos Retail Think Tank (RTT) has determined that retail health in Q3 2018 remained stagnant, despite the summer boost that has benefitted some retailers.

  • Retail health in the UK has been negative or flat for 10 consecutive quarters
  • Demand remains volatile, while margins remain under pressure as costs continue to rise
  • Success in the all-important ‘golden quarter’ will be determined by ongoing Brexit negotiations and retailers’ ability to navigate the economic headwinds

The latest Retail Health Index (RHI) score of 79 marks the 10th consecutive quarter of negative or flat performance, which further reinforces the industry’s ongoing struggle with structural change, as well as the perilous trading environment.

Commenting on the latest health assessment, Paul Martin, co-chair of the RTT and UK head of retail at KPMG, said: “There continues to be significant divergence in performance online versus the high street and between food and non-food. While the start of the quarter was boosted by spectacular weather – benefitting categories like grocery and even apparel – overall retail health was lackluster. Back-to-school was really disappointing, if not a non-event, which was surprising given performance in previous years. Really, any improvements made by retailers were very quickly suppressed by issues elsewhere.”

Dr. Tim Denison, co-chair of the RTT and head of retail intelligence at Ipsos Retail Performance,added: “The quarter could have been a lot worse than it was. It ended up benign rather than bloody. Consumers are stuck in a holding pattern, carrying on everyday living, but thinking twice about spending amounts they might subsequently regret.”

Looking at demand within the quarter, James Sawley, head of retail & leisure at HSBC, added:“The first half of the quarter saw strong demand thanks to the weather, whilst the opposite was true for the second half. Weather is often cited as both a driver of sales as much as the excuse for poor performance, but the third quarter of 2018 really evidenced just how volatile demand is currently. It’s not all doom and gloom though, some retailers are managing to buck the overall trend, but they are the exception to the rule.”

Nick Bubb, retail analyst, added: “Whilst it’s impressive that non-food managed to perform better than expected in Q3 2018, especially in light of interest rate rises, it is alarming that demand for food showed signs of slowing.”

Commenting on the health of grocery, Mike Watkins, head of retailer and business at Nielsen UK, added: When looking at September’s weak food sales, we need to consider that this time last year food price inflation was higher, making this year’s performance look worse than it actually is. However, despite the brief summer uptick and a strong start to July , we are notably buying less food and drink at Supermarkets in recent weeks ,and the post-summer hangover has clearly kicked in. Added to that, we’re are at the much anticipated tipping point ahead of Christmas where consumers are shopping more cautiously across the board, whether it’s food and drink or bigger ticket items.” 

The RTT were in unanimous agreement with regards to retail costs and margins, with Nick Bubb having stressed that “…very little has changed, as pressure on retail margin continues, as costs only appear to be going in one direction – up”.

Indeed, Martin Hayward, founder of Hayward Strategy and Futures, asked whether “…a retailer’s desire, and more importantly its ability, to price match might disappear in this current environment.”

Looking ahead to the all-important ‘golden quarter’, or Q4, the RTT believe that retail health is likely to decline by one index point, which will bring the RHI to 78 – a score that would mark the poorest golden quarter since the retail health index began in 2006.  .

Some RTT members were more optimistic about the final quarter of the year, believing that Black Friday and Christmas will result in increased retail traffic, however the majority cited both the impact of Brexit and the broader economic environment as key causes for concern.

Discussing Brexit negotiations specifically, James Knightley, chief international economist at ING, said: “Unemployment rates in the UK closely correlate to vacancy rates, which demonstrates that the UK is likely to face a significant skills gap, especially where low-skilled EU-migrants and agriculture are concerned. Wages are rising alongside other cost increases, so it’s inevitable that retail will be adversely impacted. Having said that, if a Brexit transitional period is agreed, nothing will change for retailers before 2020, but the health of retail remains extremely volatile at the moment.”

James Sawley added: “Just by looking at both the macro- and micro-economic environment currently, the trajectory of retail health is all too clear. The industry is acutely aware of consumers clawing back on their retail spend, and in all likelihood it’s going to be a very lean Christmas.”

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