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Retail Think Tank

Late Christmas dash provided welcome relief, but deterioration of retail health continues

  • Christmas trading proved better than expected, but still fell short of turning the tide on deteriorating retail health
  • The first quarter of 2019 is unlikely to provide any further relief, with Brexit uncertainty remaining a key concern of retailers and consumers alike

The KPMG/Ipsos Retail Think Tank (RTT) has determined that Christmas trading was slightly better than feared – thanks to the last minute festive rush – but that the overall health of UK retail still deteriorated in the final quarter of 2018. The Retail Health Index (RHI) score dropped by one point to 78 in Q4, bringing the index perilously close to the historic low of 76 witnessed during the double-dip recession of 2012/13.

Looking ahead to the first quarter of 2019, the RTT members felt pessimistic. However, they stressed that their predicted RHI score of 77 would depend greatly on the outcome of Brexit negotiations and subsequent impact on retailers and consumers alike.

Commenting, Paul Martin, co-chair of the RTT and UK head of retail at KPMG, said: “Looking at the Christmas trading reports as they’ve landed, it’s clear that the very last minute Christmas dash this year did provide most retailers with some light relief. Indeed, their performance has actually been better than many of the gloomy forecasts. Having said that, our retail sales monitor found December 2018 to be the worst in a decade, and year-on-year there has certainly been an ongoing deterioration in performance.”

Meanwhile, Dr. Tim Denison, co-chair the RTT and head of retail intelligence at Ipsos Retail, added that: “When looking at non-food footfall, Ipsos data found, in December it was  down -1.5% year-on-year, compared to the predicted -3% decline. What’s more, clothing and footwear actually noted an increase of 0.1%, so Super Saturday clearly lived up to its name. Whilst this was of course welcome, it was still too little too late in light of a torrid November and quiet October, and performance in the full quarter didn’t recover.”

When looking at the quarter in more detail, especially with regards to consumer demand, Nick Bubb, retail analyst, believed that “the late run ahead of Christmas is the reason why we have had fewer profit warnings than expected so far in January”. He added that “It clearly showed that when consumers want to spend, they’ll find a way of doing it. And that retailer’s logistics operations are now so efficient that they can readily supply that demand”.

Discussing the drivers of demand further, James Knightley, chief international economist at ING, pointed to the fact that the economic environment has been in the consumer’s favour. “The jobs market remained relatively firm, while wage growth had also picked up above the rate of inflation, meaning consumers did have more in their back pocket to spend”, he said. Despite this, he also flagged that “Brits are fond of a bargain though, having come to learn that waiting for the sales often pays off”.

In a similar vein, Mike Watkins, head of retailer and business at Nielsen UK, added : “Demand in retail continued to slow and even grocery sales were weaker than last year as shoppers started to moderate spend on food and drink . However, there were some attractive price cuts and promotions in December at the big supermarkets, which lifted to volumes, but not necessarily profits. When shoppers did spend more freely, it was on drinks, confectionery, snacks and seasonal indulgences. The discounters however, managed to buck the overall trend, as reflected in the recent Christmas trading reports”. 

Martin Newman, Founder of The Customer First Group, stressed that: “Many brands – even high-end retailers – were discounting so aggressively with the hope of making consumer demand a little more robust”, whilst James Sawley, head of retail & leisure at HSBC, added: “Some retailers sought to hold their nerve with regards to discounting but many later came to realise that it was the wrong decision”.

Looking ahead and to the RTT’s prediction for the first quarter of 2019, the members were in unanimous agreement that much remained unclear, as Brexit negotiations and the consequences were also still to become apparent. Having said that, as things currently stood, the members did believe health would decline further, predicting a one point decline of the RHI to 77 – a score not witnessed since the first quarter of 2013 during the double-dip recession. Jonathan De Mello of Harper Dennis Hobbs stressed that: “The health would be highly correlated to the political mood music and impact on the consumer psyche and retailers costs”.

Putting Brexit aside, Maureen Hinton at Global Data, added that: “The first quarter of 2019 is going to be another slow one, especially given the late Easter this year. Post-Christmas, both consumers and retailers face bills; consumers from their credit cards and retailers from rent and VAT bills.  And if there is another late cold spell added to slower spending, it will be even harder for retailers to recover profit lost in 2018.

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