News and Insights

Britain’s retail future looks promising

LONDON, UK - The outcome of last year’s EU Referendum is being blamed on recent retail figures, which demonstrate that people have started to curb their spending habits in response to the fall in the pound’s value following Brexit.

Over the last two months, retail sales dropped to their most dire levels since July 2016. 44 per cent of retailers said their sales volumes fell in August compared to the same period last year. 57 retailers gathered data that showed the retail sales balance figure slid to minus 10 this month, a decrease from the plus 22 July statistic.

The effects are being felt by some of Britain’s largest consumer brands. The owners of Currys PC World reported that last year, the company made £500 million. So far, they have made between £300-400 million, a 10 per cent drop in their previous year’s profits. According to Chief Executive Seb James, that has been caused by the pound’s decreased value making mobile handsets more expensive. They are hoping the new iPhone will be a massive success during the Christmas sales. DFS also warned on 15th June that an uncertain political environment will contribute towards them missing their sales targets. This warning was issued after the sofa retailer experienced a 4.1 per cent drop in its purchases during that same month.

However, Brexit is not the sole reason why the retail sector is struggling. Other factors have caused many customers to change their spending habits, like online shopping. In a society where people are becoming increasingly time-compressed, it is also more convenient to use this shopping method. But the impact is being felt on retailers. Debenhams reported a 3 per cent drop in their sales this year.

Other reasons why the retail sector is struggling is because companies like Amazon are expanding into this sector. Marks and Spencer, Debenhams, Pets at Home, and grocers Morrisons and Ocado, have all entered the retail market as well. It is becoming an increasingly competitive market place which is also causing many traditional retailers’ profits to shrink.

There is no doubt that this decade has been tough on retailers. But despite all the negative sales figures that have been issued by some of the UK’s largest retail stores, it does not make for dire reading entirely. Many of them have adapted to a changing environment and are thriving. No matter what happens politically and how much governments of all colours interfere in businesses, the market will always adapt. Primark has witnessed its sales expand by an impressive figure of 7 per cent for the 24 weeks to March to 9 per cent in the 40 weeks to 24 June. Primark has faced criticism over the years for the terrible conditions many of their foreign workers who produce the clothes work in and the types of clothes it produces, like padded bikinis for children. Yet they have learnt from the remarks and they continue to become stronger as a retail brand.

Next has witnessed its share value increase by 10 per cent. Their Chief Executive Officer, Lord Wolfson, said that his business was performing well. He is slightly concerned about the current environment, but at least his company is profiting. Their sales were up by 0.7 per cent in the second quarter of the year.

Tesco has many reasons to start feeling optimistic again. Like for like sales have increased by 2.3 per cent, driven by increasing food sales, which were up by 2.7 per cent alone. Customer transactions grew by 1.3 per cent, with 10 million more consumers using the supermarket compared to last year.

One of Tesco’s main competitors, Sainsbury’s, is also fighting back against a stagnating retail environment. With Amazon becoming a growing threat on the retail market, they have bought Argos to help them compete against this company’s creeping expansion. Even though it looked likely that Argos was going to become bankrupt, that did not happen and it appeared that the supermarket made the correct decision. Excluding fuel, their sales rose by 2.3 per cent this year. Favourable weather conditions and cutting prices on fruits like strawberries saw the grocery business’s sales increase by 3 per cent. Clothing jumped by 7 per cent. Sainsbury’s may purchase wholesaler Nisa too.

These companies demonstrate that there are still plenty of reasons to be optimistic about Britain’s retail sector. It may be struggling due to Brexit uncertainty and squeezing living standards, but many organisations are still prospering. Supermarkets are leading by example in a constantly changing retail environment as they explore innovative ways to continue to make money. Fixed prices in supermarkets are likely to disappear altogether in five years’ time. Like share prices, supermarket goods will be priced according to demand. Many consumers are already used to this due to foods like fish varying in price due to the amount of stock they have. Bread can fluctuate in value depending on their sell-by dates. Soon they will be able to charge more on goods that are in demand, like ice creams on sunny days, sandwiches at lunchtime, beer and wine during major sporting events and burgers during barbeque season.

Also, many local councils have recognised that retailers have struggled during this decade and are offering incentives to help keep businesses open during a changing environment. Council car parks in Dudley, Brierley Hill, Halesowen and Sedgley have been free for two hours since the launch of a pilot scheme in April. On October 1st, council bosses intend to offer one hour of free parking instead of two hours with an ambition to bring it in permanently. Alcester in Warwickshire has also offered free parking to visitors in a bid to boost tourism revenue to the town. Manchester has also experienced an increase in visitor numbers since they offered free on-street weekend parking. If more local councils can roll out this scheme, there is no reason why retailers cannot benefit in the current climate.

There is still a lot of good news originating from the UK’s high streets, even if it is not being reported that way.

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