BRC Quarterly Trend Analysis - British Retail Consortium

BRC Quarterly Trend AnalysisKPMG/IPSOS Retail Think TankHealth of UK retail will worsen torecord levelsFollowing its quarterly meeting in April 2012, theKPMG/Ipsos Retail Think Tank (RTT) – a panel ofretail industry commentators that providesauthoritative and independent views on issuesaffecting the sector – is reporting an even bleakeroutlook for UK retailers, with the health of theindustry expected to worsen to record levelsbefore any signs of recovery.Although high profile events such as The Queen’sDiamond Jubilee celebrations and 2012 Gameswill inject a ‘feel good’ factor for some, underlyingeconomic trends will have an increasinglydetrimental impact on consumer confidence andspending, according to the RTT.The RTT Retail Health Index is expected to fall toan all-time low of 77 by the end of quarter two of2012. This compares with 79 at the end of thefirst quarter and is five points lower than the levelrecorded during the depths of the original bankingcrisis and recession, in quarters two and three of2009.The deterioration in health in quarter one of 2012was not as significant as the RTT had originallyforecast, partly due to higher than anticipateddemand and margins pressures easing. Costsagain took their toll as retailers contended with anunexpected fuel crisis and higher energy prices,as well as ongoing investment in online and multichannelinfrastructure.Most worrying, the state of health by the end ofthe second quarter of 2012 looks set to be thebleakest on record since the RTT Retail HealthIndex was established. The combined effect ofincreased energy costs, raised fuel prices andhigher borrowing costs - among other economicand financial influences – is expected to furtherdampen consumer demand for in quarter two of2012. Although inflation is on the decline, it is stillabove wage rises and many consumers aredipping into their savings to keep up withincreasing pressures on their household budgetsand disposable income. The majority view of RTTmembers is that retailers will struggle evenfurther, although voting was split - reflecting thelevel of uncertainty that exists.Summarising the RTT’s April discussion, HelenDickinson of KPMG, said: “What we expected tohappen to the health of the UK retail sector in thefirst quarter looks to have been delayed until thesecond. The underlying economic and financialtrends are pointing in the wrong direction forretailers, many of whom are struggling togenerate sales, protect their margins and controltheir costs. The retail sector is undergoingstructural change as our desire to consume everincreasing volumes of goods diminishes andtechnological advances continue to change theway we shop. Future increases in selling pricesare not an option for retailers to use to help themrespond to these changes and maintain salesgrowth. Maintaining and improving profitability is agoal which is becoming harder and harder forretailers to achieve and hence the state of healthwill continue on a downward trajectory for theforeseeable future.”