RTT reports retail predictions - ToyNews

RTT reports retail predictions

Retail Think Tank debates prospects for UK retailers in the year ahead in its latest white paper.
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The discussion for the KPMG/Synovate Retail Think Tank’s (RTT) latest white paper followed one of the toughest years of trading UK retailers have experienced for many years.

In discussing the difficult conditions faced by retailers, the group concluded:

2009 will be a cathartic year for retail, where the industry will ‘keep the best but lose the rest’. Trading conditions will remain difficult into 2010, with discretionary spending affected the most and non-food retailers hit the hardest.

While the economic backdrop is set to continue to deteriorate, led by rising unemployment, the board foresee the mantra ‘cash is king’ will be more crucial than ever, with relationships with suppliers becoming increasingly critical.

Current conditions are expected to help create a rebirth of service excellence and there has never been a better time for overseas retailers to invest in UK retailing, due to availability of cheap acquisitions in quality locations.

The group shares the view that there is no quick fix and expect consumer spending to fall both this year and next. Vicky Redwood of Capital Economics said: “The economy is going from bad to worse. As the UK experiences a recession that is set to be worse than that of the early 1990s, consumers are in for an extremely tough year.”

Richard Lowe of Barclays commented: “Hopes by many commentators at the beginning of 2008 were high that this crisis would be largely contained within the financial system. However, this was not the case with an uncertain economic outlook resulting in falling house prices, increased unemployment and a significant reduction in consumer confidence. The result has been consumers paying down debt and increasing their overall savings.”

It’s not all bad news through. The squeeze on income is easing significantly with falling agricultural commodity prices pulling down food prices. Oil and petrol prices have plummeted and consumers should also benefit from utility price cuts later this year.

Retailers have, over recent years, been sourcing stock from overseas, thus increasing currency risk into their businesses. It is now key banks support their customers. Richard Lowe said: “It is critical at this time for retailers to have a partnership approach with their bank, ensuring both are working very closely together.”

The RTT discussed how strategies might change and agreed we will see re-financings for retailers needing to rebuild balance sheets. For the stronger brands, investing in growth will be the order of the day, as recession presents an opportunity to take market share as the good get better, while the weak will not survive.

Helen Dickinson said: “The winners will be those that do two things - relentlessly pursue their clear vision of who their customers are and what they want and have the flexibility to innovate and make changes to their business to respond to those changing customer needs.”

According to Synovate, footfall is due to drop by 2.3 per cent this year compared with 2008. Tim Denison said: “There may be fewer purchases and smaller basket sizes, but some will decide to shop and spend less often, so valuing trips more than they have done over the last decade. Their price knowledge will become more accurate and whereas buying on credit used to be de rigueur, we may now see a revival in the art of saving-up-to-afford-to-spend.”

The slowdown in the economy will impact upon the way international retailers develop in 2009. Professor John Dawson of the Universities of Edinburgh & Stirling said: “UK retailers have been active in foreign markets with their store operations in both food and non-food sectors.

“The slowing of growth in consumer spending in emerging markets and likely declines in mature markets pose a strategic conundrum for these international retailers. While opportunities will certainly still exist in emerging markets, should firms make investments with a long term view that these markets will return to strong growth or should attention be focused on making sure performance is solid in their UK operations?”

The RTT’s deliberations concluded that 2009 is set to be a ‘brave new world’: an extraordinary year set against a unique economic backdrop where casualties will invariably capture the headlines. However, these casualties will not necessarily tell the whole story.

The year ahead will undoubtedly be challenging but the RTT points out that there are many winning retailers in the economy. As businesses have failed – and may continue to - there is much turnover to be won by their competitors in the sector, if they have the right strategy and proposition.

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