What’s Going Down on the High Street?

A leading think tank has warned that high street retailers are facing a "fight to survive" due to the continued uncertainty over Brexit and other negative factors. The sector is likely to be hit by "lacklustre consumer spending" for the foreseeable future, according to a report by the KPMG/Ipsos Retail think tank.

In addition to the stagnant economy caused by Theresa May's ongoing failure to negotiate a positive Brexit deal from the European Union for the UK, disposable incomes are also being squeezed as a result of an inflation hike.

Survival fight

Combined with stagnant wage growth, it spells a period of uncertainty for the high street, with some shops facing a fight for survival, according to the think tank. The high street will "flat line" at best and 2018 won't go down as a memorable one for the UK retail industry, says co-chairman Tim Denison.

He describes retailers as "working manically behind the scenes" to find better ways of delivering the all-important customer experience that spells the difference between success and failure as they compete with rivals who are in the same situation.

Denison suggests the fight for survival might lead to more consolidation, in the shape of acquisitions and mergers, as smaller businesses in particular find trading conditions challenging.

The UK competition regulator cleared Tesco's £3.7 billion takeover of the Booker Group in December 2017, while shopping centre operator Westfield and shopping centre and airport operator Unibail-Rodamco announced a tie-up, as did Intu and Hammerson in a similar deal.

Toys R Us was a casualty of the current uncertain climate, announcing its bankruptcy last year. Ironically, analysts say the loss of the high street giant saddened parents and grandparents and prompted an increase in spending on toys in the first half of 2018.

Toy sales grew by 7% through to June, according to market research by NPD Group, whose senior vice-president, Juli Lennett, said the publicity surrounding Toys R Us had kept toys uppermost in parents' and grandparents' minds - benefiting the industry as a whole. She was convinced that the loss of Toys R Us was at least partly responsible for the increase in toy sales.

Online shopping

Among the sectors expected to be worst hit by the trading conditions are mid-market clothing stores, larger discretionary purchase categories such as holidays and other luxury items and store-based business models.

Online shopping continues to boom. According to an article in the Financial Times, Amazon seems "unstoppable" at present - sales increased between December 2012 and December 2017 from 11.6% of the total market to 24.1%. The online sales of clothing have been growing steadily for seven years.

High street clothing stores were also experiencing growth up to 2016, but shopping trends have changed in recent years and subsequently, sales have now started to decline.

According to the consumer insight arm of research group Kantar Worldpanel, online shopping appears to be growing "at the expense of offline". Online sales are said to be rising because of the convenience factor, with next-day delivery now being offered as standard by most companies. Some online companies are also offering same-day delivery.

It's also easy to compare different products online, order several options and send back the ones you don't like free of charge. Price also plays a part, with some consumers assuming online shopping is cheaper, although this isn't necessarily the case.

Brexit

The KPMG/Ipsos Retail think tank said it expected to see close links between the outcome of the Brexit discussions and the overall health of the retail industry. However, there didn't appear to be much positive news for the high street, whatever the outcome.

The think tank predicts a soft Brexit will most likely lead to only meagre growth - but a hard Brexit might see the market contract further. It says consumer confidence is linked to Brexit and this will ultimately determine the health of the sector.

As the Brexit negotiations continue, consumer confidence is low, with the British Retail Consortium stating there has been a "downbeat tone" in 2018.

The fall of the pound and inflation have eaten into incomes, so household budgets aren't stretching as far, according to the BRC. There's "little sign" of this changing any time soon, the consortium concludes.

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