Retail health slips further

New figures show retail health has slipped for the seventh quarter running.
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The KPMG/SPS Retail Think Tank has released its latest ratings for the third quarter, showing retail health has slipped a further three index points to 92.

The rating is slightly better than the panel predicted and declined at the same pace as the first and second, rather than deteriorating any quicker as predicted.

In predictions for the fourth quarter, the panel issued its most pessimistic predictions yet. Members believe retail health will fall to an RHI value of 86.

The projected worsening rate of decline in health mainly on deterioration in margins and demand, the board was keen to point out it is not all bad news as costs have stabilised and retailers will benefit from a relief in costs in the next quarter.

RTT members also predict a fall in demand in Q4 with non-food retailers taking the brunt. With the latest unemployment figures up by 164,000 in the last quarter, the board feels fear of unemployment will further hit consumer confidence and demand.

Declining margins are also set to hit retailers as they may now have reached the limit of how far suppliers can be pushed while still attracting customers at prices that protect margins.

Inflation, increased staff costs and redundancies in China are likely to affect the prices paid for products sourced there, as will the maturity of currency hedge deals with the pound continuing to be weak against the Euro and the Dollar.

However, there is some good news in the report, the board expects costs will begin to decline as the price of oil falls, quarterly rent changes to monthly payments and rent inflation rates fall.

Professor John Dawson of universities of Edinburgh and Stirling summarised the thoughts of the RTT:

“It’s important to state that despite the somewhat negative predictions, we are not harbingers of doom. Yes, some smaller, weaker, just plain unlucky or poorly financed retailers will fail in the coming weeks and months.

“However, those wily retailers who constantly monitor and modify their entire operations, both online and in store, will come out of this difficult period fitter and stronger.”

Meanwhile, at a presentation for property consultancy EC Harris, retail analysts Verdict Research are forecasting that UK shoppers will spend more this Christmas despite the current financial crisis, but extra spend will be driven by the higher food costs.

Consumers, therefore, will be careful with gift purchasing, buying fewer items. This means retailers will have to fight much harder for a share of their Christmas spend.

EC Harris head of retail, Catherine Tobiasinsky, said: “In the toughest economy for years; all instincts are telling retailers to baton down the hatches. In reality, anything is possible, with it being the best time in the last 15 years to reduce operational costs and beat inflation by maximising built assets.

“Tenants are becoming customers, retailers are becoming developers undoubtedly times are tough, but now is the time to innovate.”


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