Health of UK Retail Remains in Doldrums but Buoyed by Summer Events
UK retailing was not quite as bad as in quarter two as it had been predicted it would be back in April, according to the KPMG/Ipsos Retail Think Tank (RTT).
The Retail Health Index (RHI) dropped one point to 78 over the quarter, maintaining the rate of decline seen in quarter one. The RTT expects this rate to continue in quarter three. Though the health of the sector is still in the doldrums, the downward gradient is not as steep as it was over the second half of 2011.
Following its meeting in July 2012, the RTT – a panel of retail experts that meets quarterly to provide authoritative and independent views on issues affecting the sector – says summer events have helped bolster retail sales, and without them the sector would have suffered far greater.
The current economic condition continues to plague retailers affected by one of the country’s wettest summers on record, despite petrol prices decreasing slightly and inflation easing.
At the end of quarter one, the RTT had predicted another difficult quarter ahead for the retail industry, whilst acknowledging it would be buoyed by The Queen’s Diamond Jubilee celebrations. That proved to be the case, with food and drink sales in particular, boosted.
However, the rise in footfall and sales on the back of the Jubilee was immediately dampened by poor weather, which has remained. This was in stark contrast to the Royal Wedding in 2011 when the event created a feel-good-factor that brought about a three-week mini boom for retailers.
RTT members agreed that April was a dire month, and were it not for the week of good weather in May and the Jubilee week in June, the quarter would have been far worse. On a positive note, though, RTT members reported that demand for indoor goods, including home ware and small electrical goods, is more robust, as households put more emphasis on home living and home entertainment. The inclement conditions and televised sporting events (such as Euro 2012 and Wimbledon) were also factors at play.
In the current abandonment of normal shopping patterns, of shopping for summer clothes as collections are released during spring and early summer, and for seasonal goods and equipment for the garden and outdoors, consumers are instead in reactive mode, responding to opportunities as and when the mood takes them. Demand is far spikier than before.
Helen Dickinson, Partner and Head of Retail, KPMG UK, said: “Overall, there have been some downsides and upsides to retail health in the quarter, but nothing especially dramatic, including the impact of the Jubilee. Costs remained pretty neutral and it was really low demand and eroded margins that were the two weakest links. The underlying trend is still very weak. When the good weather has appeared occasionally, it’s had an impact, but people are only spending then because they’ve been holding back.”
Dr Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance, said: “Earlier in the year we saw a lot of promotional and discounting activity among retailers, but this could not be sustained because margins were taking a real hit. There has been some similar activity in quarter two, but this has been more discreet and targeted. In some cases, retailers have got away with offering a little bit less than they did in quarter one. Notably, the launch of summer sales at the end of June helped to lift footfall.”
Summarising the RTT’s July discussion, Helen Dickinson of KPMG, said: “The health of UK retail in quarter two was pretty much as expected and our forecast for quarter three is much the same as quarter two. There continues to be a poor and underlying situation facing retailers that pushes out any sign of recovery for the sector. The question is whether or not we will see any upturn. In other words, is the situation now normal, will it get worse, or is the ‘new normal’ just slightly better than what retailers are currently experiencing? The fact might be that yesterday was much better than it should have been.”