Published on January 17th, 2018 | by The GC Team0
Retail’s ‘Golden Quarter’ delivers negative performance for first time in five years
The overall health of UK retail dropped one point in the fourth-quarter of 2017, as increased demand during the Black Friday promotional period and in the late run-up to Christmas failed to prop up diminishing margins and rising costs.
The KPMG/Ipsos Retail Think Tank (RTT) said The Retail Health Index (RHI) dropped one point to 80, taking it back to the level it stood at in Q4 2014.
Despite the positivity of some retailers’ trading results released post-Christmas, the RTT felt that the detrimental effect of tightening margins and rising costs, coupled with a worsening economic climate and the fragility of consumer confidence, meant the sector delivered a negative performance in the ‘Golden Quarter’ for the first time in five years.
It is also predicted that retail health will drop again in Q1 2018, with Black Friday activity pulling forward-purchases away from the January sales and tougher economic conditions impacting on the spending power of consumers.
Of the three main drivers of retail health – demand, margin and cost – it was margin that had the biggest impact on retailers throughout the final quarter of 2017. With extended promotions and heavy discounting across the sector in the run up to Christmas, margins suffered. Whilst trading results were largely poor across the non-food sector, the RTT was keen to highlight there were retailers that had bucked the trend, with the discounters performing particularly well on the high street.
Members acknowledged that economic conditions in the quarter had generally been better than originally thought, but high personal debt levels, the interest rate rise and Brexit uncertainty all conspired to soften demand and curtail spending at the tills.
Dr Tim Denison, head of retail intelligence at Ipsos Retail Performance, said: “Online retailing has had a seismic impact on the way that retailers approach both Black Friday promotions and the Christmas trading period. High street footfall fell back sharply during the festive period when compared to last year, as many consumers avoided the bad weather and stayed home to complete their Christmas shopping.
“To make the most of these increases in online sales, there has to be further investment in productivity and multichannel offerings in 2018, as retailers aim to reduce costs and improve margins, so as much profit as possible is squeezed out of any increases in demand.”
Maureen Hinton, group research director, GlobalData Retail, said non-food retailers are the casualty of changing consumer demand.
“With incomes being squeezed and leisure spending prioritised there is less money for discretionary purchases, leading to over-capacity in the market. This is behind much of the heavy discounting in 2017 and, with increasing costs, margins are narrowing further. We are likely to see more casualties in 2018 as conditions will not improve.”