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Retail Think Tank

Christmas failed to turn the tide on deteriorating retail health, the KPMG/Ipsos Retail Think Tank says

16 January 2020

The KPMG/Ipsos Retail Think Tank (RTT) has concluded that the crucial final quarter of 2019 failed to provide retailers with any respite from the onslaught of deteriorating health in the sector. Demand over the key trading weeks prior to Christmas failed to make up for lost ground if looking at the quarter as a whole. That said, the RTT believe that some improvement in the sector’s health is likely to materialise in 2020.

In 2019 the state of retail health deteriorated every quarter according to the think tank’s Retail Health Index (RHI) – a quantitative and qualitative assessment of demand, margin and cost. The RHI score now stands at a new record low of 74 – a score not recorded since the Think Tank’s inception in 2006.

The RTT’s members point primarily to wavering consumer demand and thin margins as the key causes for concern. They deem that demand in the ‘golden’ quarter didn’t rebound enough following the conclusive General Election result to release any pent-up consumer demand. Furthermore, the later timing of Black Friday and Cyber Monday applied additional pressure to retailers’ margins, with aggressive discounting rife during the quarter in order to get stock moving.

Looking ahead, and as detailed in the think tank’s recent ‘Outlook for 2020’, the perception of certainty resulting from the recent General Election could well provide retailers with reasons to be cautiously optimistic. Having said that, the RTT predicts that health won’t rebound immediately, with the RHI score for the first quarter of 2020 predicted to hold steady at 74.

Reflecting upon performance in the final quarter of 2019, Nick Bubb, independent retail analyst, said:

“A mere glance at recent Christmas trading reports and accompanying media headlines confirms that the final quarter of 2019 was a real mixed bag as far as retail performance is concerned. It’s hard not to focus on grocery in particular, given its prominence during the festive period. There has generally been a weakening of grocery sales in recent months, which is testament to wavering consumer demand, and there was a notable disparity between the ever-growing discounters and the main supermarket chains.

“Further illustrating the industry’s struggles, and adding to the more downbeat mood music, the latest BRC-KPMG retail sales monitor revealed that total sales declined 0.9% year-on-year, if looking at November and December 2019 combined. Moreover, even online sales were notably lackluster, with growth of only 2.6% in November and December 2019, despite an increasing number of sales taking place online.

“Consumer demand has undoubtedly been impacted by the high levels of political uncertainty which plagued much of the final quarter, and indeed 2019 as a whole. Even after the decisive result of the General Election result in December, the much-expected ‘Boris bounce’ failed to materialise and the consumer stayed cautious pre-Christmas. Black Friday and Cyber Monday were also later this year, which cannibalised trading in December and encouraged consumers to wait for more discounting. Retailers had little alternative but to discount aggressively to get stock moving – applying further pressure on margins. All in all, the final quarter of 2019 marked a disappointing end to what can only be described as an extremely challenging and turbulent year.”

Looking ahead to the first quarter of 2020, Dr. Tim Denison, co-chair of the RTT and director of retail intelligence at Ipsos Retail Performance, said:

“The first few months of the year are usually quite depressed, with the post-Christmas hangover muting consumer demand. Indeed, 2020 will be no different and with consumer debt remaining high, consumers will likely be even more conservative with regards to their spending. Long gone are the days of January sales boosting consumer interest in retail. The rise of Black Friday and Cyber Monday have taken the shine off aggressive discounting post-Christmas in recent years.

“A degree of certainty has returned to retail though, given the decisive General Election result. The industry still has many reasons to feel more optimistic – albeit with a pinch of caution thrown in for good measure. We have to acknowledge the fact that unemployment remains low; real wages have rebounded to pre-financial crisis levels; and consumer confidence has started to climb once again. The uptick in retail health might not come to fruition immediately, but certain categories are set to improve, including: DIY, if the housing market picks up, and leisure or health and beauty, as consumers chase the growing wellness trend. Consumers simply won’t want to start the New Year with the same downbeat mind-set they had in 2019, and neither will retailers.”

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