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Industry News Health of UK retail steadies in quarter two, says Retail Think Tank

Published on July 24th, 2013 | by The GC Team

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Health of UK retail steadies in quarter two, says Retail Think Tank

Trend expected to continue in quarter three

The health of UK retail has shown signs of steadiness rather922-104 than notable improvement over the past quarter, and quarter three is likely to be a continuance of this trend. This was the overriding view of the KPMG/Ipsos Retail Think Tank (RTT) at its quarterly meeting in July.

The three key drivers of retail health – demand, margin and cost – were all relatively neutral, with demand slightly up on quarter922-109 one of 2013, margins still under slight pressure and cost factors largely negligible. The RTT’s Retail Health Index notched up another point, to 78, the second increase in succession since continuously falling from the beginning of 2011.

Retailers are at last feeling more positive than they have done for several months and appear to be focusing on the right areas of their business to avoid insolvency, concentrating instead on sales and future growth. The RTT warned, however, that there are no strong indications this marks the beginning of a robust recovery for UK retail.

The outlook remains a confusing and uncertain one for UK consumers too.  Although most people are aware of their household incomes and budgets and tend to plan accordingly, with so much economic doom and gloom in the past 18 months, some may spend regardless of their personal financial situations during quarter three.

Many retailers continued to feel pressure to promote sales and discount in quarter two and margins have still been squeezed by consumers expecting to grab a bargain. The food sector, in particular, remains extremely competitive with many of the major grocery stores still discounting to claim market share.

Notably, cost factors did not have a major influence on retail health in quarter two as petrol prices were lower (compared to the same period last year), rates were up roughly in line with inflation and labour costs overall were quite modest.

The RTT acknowledged that the arrival of Mark Carney, the new governor of the Bank of England, offered more positive signs for the retail sector as he indicated that interest rates would remain low and not stifle any chance of economic recovery.

David McCorquodale, Head of Retail, KPMG UK, said: “Compared to the carnage that occurred in 2012, this year we are seeing a far more settled picture which is a welcome sign for the retail industry.  Certainly, there is less gloom, and expectations that retailers will enter into administration are lower, but for those sitting on large debts there is still inevitably a risk of insolvency.

“The retailers left standing appear to be working on the right areas of their business and are feeling and being more positive,” he added.

Independent retail analyst Nick Bubb said: “The retail sector continues to bump along a corrugated bottom and it’s a mixed and very messy picture.  Consumers are to an extent fed up with it being so gloomy and may be inclined to resort to the ‘sod it’ factor – spending money regardless of the state of their finances.  With interest rates so low, there is simply no incentive for them to save.”

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