Q2 was better than expected for retail

The decline in retail health has 'bottomed out', but Q3 is expected to bring more of the same.
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The KPMG/Synovate Retail Think Tank (RTT) has unveiled its latest Retail Health Index (RHI) evaluation.

The RTT judged that the state of retail health in the UK in quarter two was two points better than it had predicted.

The RHI nevertheless had still declined marginally in quarter two, by one point, representing the poorest state of health the sector has seen since the report began in April 2006.

Disposable incomes are now considerably higher than a year ago but consumer confidence is still holding back spending.

For retailers, discounting to stimulate demand, the maturity of existing exchange rate hedging and the stabilised but still relatively low value of the pound for goods sourced in dollars or euros, along with the reluctance of non-food retailers to pass on increased costs, all contributed to a further negative impact on health of margins.

The RTT did agree, however, that the impact on health of costs continued to be positive in quarter two, as retailers continued to benefit from reduced pressure on rents.

However the impact of cost-cutting measures is beginning to make an impact for some retailers and there is evidence of a swing back towards a commission culture to retain valued staff.

Members also noted the beneficial impact for some chain retailers following the demise of retailers such as Woolworth’s and Zavvi was beginning to show.

Looking forward to quarter three, Members agreed that the falling state of retail health appears to have ‘bottomed out’ for the time being. In many respects they felt that quarter three would bring more of the same and it wouldn’t be until quarter four that further changes begin to show.

In the meantime retail health is forecast to remain at an RHI value of 82 in quarter three, the same as in quarter two.

Commenting on this trend the RTT said, “We are reassured that the deterioration in retail health has now halted after falling for nine solid quarters, but the situation remains volatile.

“Key to the levelling out is that demand finally stopped negatively impacting health last quarter, costs are under control and only margins remain the sole downward force on overall health – something largely outside of retailers’ control.

“Consumer confidence however is still is still very fragile, though it seems that the main adjustment in consumer spending is taking place off the high street rather than on it.”

Vicky Redwood, Capital Economics, summarised: “After the sudden and dramatic drop in retail health in autumn 2008, we have seen the rate of decline ease off. We are hopeful after the fall of just one point in quarter two, that quarter three will see the end of the decline for now.”


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