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Reining in costs is top priority for retailers in 2020, survey finds

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Reducing costs will be the top priority for retailers in 2020 with two thirds planning to renegotiate rents, according to the latest research from advisory firm RSM.

The survey of over 300 middle market consumer business leaders – entitled Consumer 2020: turning vision into realityreveals a high degree of optimism among retailers, with 74% saying they were positive about the prospects for their business over the coming year.

However, this was lower than the average of 81% across other consumer business sectors, and must now be read in the context of the potential, wider ramifications of coronavirus impacting key supply chains.

Reducing costs was cited as the top priority for retail operators in the year ahead (mentioned by 51% of respondents) with rental costs a prime concern. In total, 22% reported that they had previously negotiated rent reductions, while 66% said they were either in the process of renegotiating or were planning to renegotiate lease terms as a means of reducing costs.

Faced with a 6% rise in the National Minimum Wage for employees aged 25 or over, many retailers are focused on mitigating the impact by reviewing internal efficiencies and increasing productivity through automation.

While in recent years many retailers have invested in customer-facing technology such as social media and mobile apps, the RSM survey revealed a shift in priorities as businesses start to prioritise technology which increases efficiency and reduces costs.

Recruitment and retention is also a key concern for the retail sector – 74% of respondents in the sector reported they had experienced difficulties recruiting over the last 12 months. This could become an even greater challenge when freedom of movement ceases at the end of the year.

Ryan Broomfield, RSM retail specialist explains: “After a tough 2019, retailers appear to have started the year well amid a new mood of optimism as consumer confidence rises. That said, with margins still extremely tight and with rises to the National Minimum Wage due in April, the sector remains focused on cutting costs and driving internal efficiencies. Driving down rental costs will be a priority. Last year, we saw a slew of CVAs as retailers sought to renegotiate rent reductions with landlords, and we can see this trend continuing into 2020.”

Broomfield adds: “Given the upcoming trade negotiations, many of the respondents to our survey also expressed concerns about the economic outlook and the consequent impact on supply chains. This uncertainty has been further complicated by the recent spread of coronavirus. Retailers will have to watch developments very closely and continue to react quickly to changes in consumer demand.”

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