Retail health shows signs of improvement

State of retail health edges upwards by one point in quarter one, the second quarter of growth in a row.
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The KPMG/Synovate Retail Think Tank (RTT) revealed, however, that unlike Q4 2009, not all drivers of retail health showed improvement over the previous quarter.

The positive trend is expected to continue into the next quarter, reflected in a forecasted one point rise in the RHI to 86, although the second half of the year remains a cause of concern to the RTT.

The RTT believes stronger demand will be the key driver of improved health in quarter two. The effects of both costs and margins are forecast to be neutral.

Helen Dickinson, KPMG, commented: “Retailers somehow managed to navigate their way successfully through the wintry weather, the VAT rise and the economic uncertainties in quarter one. 

“The big issue is whether pre-election jitters will trigger a downturn. The RTT believes there is no reason for this to happen, but it will be only a matter of time thereafter when the tough decisions on the public deficit will begin to take their toll. For example, given that none of the political parties have ruled out a rise in VAT this could impact the sector before the autumn.”

Tim Denison of Synovate added: “We shouldn’t underestimate how bad January was; because of poor weather, low stocks of sale goods and the VAT increase. Since then, trading figures have become stronger, albeit quite disparate, turning the quarter around. Shoppers haven’t simply sat on their hands, but have shopped strongly into spring.” 

Professor John Dawson, Universities of Edinburgh and Stirling offered: “Employment levels remain at risk, but won’t upset performance in quarter two. Though confidence might drop in the quarter, it won’t impact on spending.

"That will only come when people feel it in their pockets. The World Cup will boost demand towards the end of the quarter, particularly for food, beverages and televisions.”

Vicky Redwood, Capital Economics added: “In quarter 2 we may see retailers building in a buffer for the likely rise in VAT, realising a possible ‘sweet spot’ before the higher rate hits.

"If there is a hung Parliament, the pound could drop sharply, but this may have been taken it into account already by the markets. And a decisive victory by either party could even prompt a significant bounce in the pound. So while there are many uncertainties, they run in both directions.”


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