19 May 2024, 21:32
By Phil Mullis Feb 14, 2018

What’s in store for retail in 2018?

For the Chinese, 2017 was the year of the Rooster – but its wake-up call failed to reach retail sales. In fact, the whole year remained dormant for a number of reasons – Phil Mullis looks at how retail unfolded and what the future may hold for the industry this year …

Despite the backdrop of January sales and Chinese New Year, the retail sales delivered a gloomy start to 2017. The underlying pattern, based on three-month-by-three-month movement, decreased by -0.4% - the first fall since December 2013. By way of contrast, January 2016 retail sales experienced growth for the 33rd consecutive month – a +5.2% increase compared to a year previously. 

This was disappointing because, at the time, the consumer was in a good position, financially – inflation was yet to hit and fuel prices were low, giving the average household more disposable income. Also, the three-month-on-three-month figures would have taken into account the Christmas spend from the second part of Q4 2016 – so a -0.4% decrease did not set the Year of the Rooster off to a flying start.

First stop – where have we been

The rest of the retail journey for 2017 continued a similar pattern. Retail sales from Valentine’s Day only delivered a +1.5%. However, the three-month-on-three month pattern during Q1 2017 quickly burst this bubble, showing an overall decrease in sales by -1.4%. 

The sales were broadly at the same level for Q2 (April to June) 2017 as at the start of the year – a beginning of a flatline, perhaps? Compare this to the same period in 2016, where the volume of sales increased +6% in May and the value of online sales increased by +21.5% from 2015 – this was even against a background of the referendum vote and the subsequent currency devaluation.

Second stop – where are we now?

The second half of the retail journey for 2017 was no more fruitful than the first half. Inflation saw prices rise at their fastest pace since 1991. Food and fuel prices started to rise, which affected the retail sales statistics with a +2.4% increase in the quantity bought. It gave the industry some hope, as on the surface it looked like people were spending more – when it was actually inflationary increases that affected the overall figures. A rise in retailers’ input costs were starting to be passed on to their customers.

September 2017 delivered a similarly so-so set of statistics, and we entered the Golden Quarter with lower quantities bought compared to 2016. By contrast, in November 2016, the quantity of goods bought increased by +5.9% YoY, whereas October 2017 showed a -0.3% fall.

How did we get here?

Since 2008 and the infamous credit crunch, we have seen a complete change in consumer behaviour. Consumers are now demanding value – not just by way of low cost but also decent quality, leaving retailers to scrutinise profit margins to ensure they remain viable in a keenly-fought marketplace. 

Furthermore, many consumers consider it the norm to demand access to retailers across multiple channels (mobile, social media and in-store), and retailers need to be switched on to technology to sate demand.

In many cases retailers have used technology to place them in front of the consumer – and arguably, this has improved their offering and, consequently, the overall customer experience. 

In April, the 132-year-old retailer, Jaeger, closed its doors. Some of its competitors offered a ‘fast-fashion’ alternative, available the second the weather became unseasonably too warm or cold. In addition, fast-fashion enables retailers to reproduce catwalk fashion much quicker – meaning consumers can have the latest collections now, rather than in six months’ time. Sadly, Jaeger could not keep up and became irrelevant in the world of fashion.

Other retail sectors have embraced technology. For example, the grocery sector, which is under constant pressure to improve productivity and keep prices low, has stepped up its self-serve options. This has come at a human cost, with Tesco making 8000 and Asda 4357 job cuts in 2017 – around three quarters of which affected store staff. This is a stark reminder that regardless of the size of your business, you need to make sure that you are constantly keeping an eye on the market and adjusting your offering according to the resources available.

However, retailers should be embracing the digital age, and automation doesn’t always mean redundancies. Jobs can also be created with the new technologies, and there are more opportunities for retailers to invest in staff training, for example, and new products. 

Retail continued to be challenged by the Minimum Wage, business rates and Apprenticeship Levy (common to many businesses but particularly retail). And, lest we forget, currency devaluation, an interest rate rise, inflationary pressures and continued uncertainty following the Brexit vote all gave consumers reasons to monitor their finances closely – consumers may decide on a night out rather than a new top as a way of utilising their discretionary spend.

What’s in store for 2018?

After the Brexit vote, many of my clients reported a stalling in big ticket and discretionary spends – particularly in furniture retail. Thankfully, it did pick up again during early 2017, but there is a chance as talks surrounding Brexit continue into 2018 and beyond that uncertainty could continue in the market. 

Looking ahead, I do not expect there to be a great deal of retail sales growth – one reason is that our GDP forecast looks anaemic, at less than +2% per annum. Thankfully, it looks like inflation peaked in 2017, but, as long as it outstrips real wage growth, consumers’ discretionary spend will continue to be squeezed – not ideal for growing retail sales.  

In addition, we could see a further interest rate increase, perhaps adding an extra £20 to monthly mortgage payments - that may not seem much, but every pound counts when it comes to consumer spend.

In some welcome news, the Chancellor, in his Autumn Budget, referenced rogue traders. Mr Hammond said that online marketplaces would be jointly liable with sellers for VAT in order to address VAT fraud. It means that traders operating through a third-party platform, such as Amazon or eBay, will need to be VAT registered in the UK, if their annual turnover exceeds the VAT Registration Threshold (currently £85,000). 

The onus is on the third-party platform to ensure the seller is providing a real VAT number. Some unscrupulous retailers have provided false VAT numbers, and charged customers VAT but pocketed what should have been due to the Exchequer. 

Finally, despite the issues mentioned, retailers have been and will continue to be a resilient and innovative breed. Consumers will continue shopping – how, where and when are the questions that retailers need to answer. Those retailers who get closer to their customers will fare better, but as with any business, they should always be keeping it as lean as possible without compromising on customer service.

Phil Mullis is a partner, and head of retail and wholesale, at chartered accountancy firm, Wilkins Kennedy LLP, which provides a range of accounting and business advisory services.

© 2013 - 2024 Gearing Media Group Ltd. All Rights Reserved.