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RetailX Brand Index 2019

RetailX Brand Index 2019

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Brexit tops customers' concerns for 2019 and is likely to continue to affect retail spending

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Brexit tops customers' concerns for 2019 and is likely to continue to affect spending

Brexit tops shoppers’ concerns for the year ahead, a new study suggests, with almost half (48%) identifying the process of leaving the EU as their biggest worry – and one that’s likely to impact their retail spending. The priority for retailers, argues Richard Lim of independent research consultancy Retail Economics, will be to ensure they are operating business models that will help them to serve shoppers online and across sales channels, in the way that they want to buy.

 

As a result of this, and concerns that also include a weaker economy (13%) and lack of savings (13%), more said they expected to spend less on experiences such as going out than said they would spend more.

 

The study, Outlook for UK retail 2019 – sustaining growth in a changing market, saw Retail Economics and NatWest questioned 2,000 UK adults about their concerns for this coming year in December 2018. Almost a third (29%) of the least well-off households showed signs of concerns around the repayment of credit card debt going into 2019, but the figure was 14% among the wealthiest households. And more than a third (37%) thought that house prices, along with the value of other assets, were likely to weaken in 2019.

 

Richard Lim, chief executive of Retail Economics, said: “I fail to recall a more challenging time to accurately predict an industry’s future. Unprecedented uncertainty persists around the Brexit deal, the political landscape and the magnitude of its potential disruption to the UK economy.

 

“The rapid evolution of consumer preferences will leave many retailers struggling to adapt business models swiftly enough to meet heightened expectations throughout 2019. The priority will be to focus on strategic transformation to pivot business models so they don’t get left behind in a digitally-driven age. The ongoing channel shift to online presents a particular challenge to bricks and mortar business models as the performance of physical assets becomes increasingly polarised.

 

“In many cases, retailers are burdened with too many stores, unsuitable space and inflexible lease structures. This will continue to inhibit the sizeable capex outlay required to repurpose some locations and invest in the IT infrastructure and logistics capabilities needed to keep pace with pure online competitors. I expect the industry to remain locked in a period of disruption throughout 2019. Structural challenges facing retailers will continue to accelerate and those that embrace, adapt and innovate to the emerging environment will be the ones to benefit.”

 

David Scott, head of retail and leisure at NatWest, said it was unsurprising that Brexit was a top consumer concern, since uncertainty always damages retail. “There is nothing more uncertain than what Brexit will look like,” he said. “Consumer confidence remains shaky at present; though we think the outlook for consumer spending will improve as inflation falls towards our target of 2%. In fact, by the final quarter of this year we expect real wage growth to be up by 1.3%. This presents the retail industry with an opportunity to attract and in many cases re-attract custom.”

 

He added: “The fact is that in 2018, those brands that had joined-up strategies in alignment with the customer journey enjoyed success, so we predict more will follow this model in the year ahead. While we recognise the struggles the sector is facing, we still see opportunity.”

 

No-deal warnings


The research comes a day after a letter from the British Retail Consortium and 10 leading UK food businesses, including IRUK Top500 retailers Sainsbury’s, Asda, Marks & Spencer, The Co-op, and Waitrose, and leading UK grocers warned of the food shortages that a no-deal Brexit would cause.

 

“While we have been working closely with our suppliers on contingency plans it is not possible to mitigate all the risks to our supply chains and we fear significant disruption in the short-term as a result if there is no Brexit deal,” the group said in the letter.

 

It pointed to the amount of produce being sourced from the EU in March, including 90% of lettuces, 80% of tomatoes and 70% of soft fruit, and said that such perishable produce would be affected by the customs checks that France has said it will enforce in the event of a no-deal exit. It also said that tariffs would put up the price of imports, while any decision to unilaterally set import tariffs at zero would hit UK food producers hard. “Our ability to mitigate these risks is limited,” said the letter. “As prudent businesses we are stockpiling where possible, but all frozen and chilled storage is already being used and there is very little general warehousing space available in the UK.”

 

It added: “We are extremely concerned that our customers will be among the first to experience the realities of a no-deal Brexit. We anticipate significant risks to maintaining the choice, quality and durability of food that our customers have come to expect in our stores, and there will be inevitable pressure on food prices from higher transport costs, currency devaluation and tariffs.”

 

Commenting, Catherine Shuttleworth, chief executive at shopper and retail marketing agency Savvy, said there had not been enough planning for a no-deal Brexit.

 

“The UK supply chain is very efficient,” said Shuttleworth, “but the downside of that is any disruption will be felt quite quickly. Yes, UK supermarkets will be looking at alternative suppliers in the UK for fresh foods etc, but the reality of the situation is that in the UK we consume in a global market. Take fresh fruits and vegetables for example, we simply don’t eat food in season these days. Instead we’ve grown accustomed to being able to shop for and eat foods that we like year-round as we source them from overseas. Unless we’re prepared to pay significantly increased prices, these foods aren’t going to be available.

 

“We have a limited amount of supply here in the UK and unless we have a well-planned and orderly Brexit, we’re going to need to brace shoppers for disappointment with their food shopping AND price hikes to eat what they want and when they want it.”

 

Image: Fotolia

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