Published on December 31st, 2014 | by The GC Team0
Retail sales growth expected to top out at 2% in 2015
The KPMG/Ipsos Retail Think Tank has warned that retail sales are predicted to grow by 2% at most in 2015 as consumer confidence remains fragile.
Concerns around the outcome of the general election, coupled with a Budget planned for later than expected on the 18th March, could cause consumers to pause their spending while they wait for greater clarity, and political uncertainty remains a real risk to consumer confidence with the general election and turmoil in the Eurozone expected to cause unease.
A possible rise in interest rates and VAT could also constrain consumers’ ability to spend in 2015. Retail research agency and consulting firm Conlumino estimates the VAT rise in Japan cost the country £6.7bn in lost retail spending growth – consumer confidence was badly hit and has not recovered.
“Whoever is in power, a rise in VAT looks almost inevitable by the end of the year,” commented Retail Consultant Nick Bubb. “It is an unfortunate truth that one of the easiest taxes to generate enough revenue to help with the Government deficit is VAT, as in the short term this is simply a tax on retailers’ profit margins. The current 20% rate is a little below VAT rates in some parts of Europe, with the 23% VAT rate in Ireland one benchmark to consider.”
David McCorquodale, Head of Retail at KPMG, said 2015 will see some growth, but retailers will do well to break through the 2% barrier. “There is undoubtedly growth coming through online sales, but this is a double-edged sword. Online sales have a higher ‘cost to serve’, putting even more pressure on retailers’ margins.”
Mark Teale, Head of Retail Research at CBRE, said online sales growth has exacerbated profitability problems because of the inability of many retailers, particularly in grocery markets, to claw back the full cost of fulfilment from online shoppers. “Margin dilution is the inescapable result of this pressure. Online has proved brilliant at capturing sales; its record as a profit generator is much less impressive,” he added.
Martin Newman, CEO of Practicology, warned that domestic retailers also need to brace themselves for competition from overseas firms starting to invade the online arena. “Many US brands are investing to make their ecommerce propositions to the UK more competitive, as are European e-tailers such as Zalando. And 2015 could see Chinese ecommerce giants, including Alibaba, throw themselves into the mix.”
“The retail environment will remain tough, partly because the economy’s momentum is expected to slow, but partly too thanks to the demanding and dynamic market conditions,” commented Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance.
“However, there are some bright spots on the horizon. Shoppers will benefit from lower prices, particularly in the food sector. Home wares will also continue to improve, but the sector’s fortunes are inextricably linked to the performance of the housing market.”