The health of the retail market and consumer confidence are low or falling, according to two sets of analysis released today.
Retail market facing ‘toughest trading conditions’
The KPMG/Ipsos Retail Think Tank (RTT) has concluded that retail health deteriorated more than expected in the second quarter of 2019. Each quarter the 10 members of the RTT – who include analysts and financial industry professionals – assess the state of the health of the UK’s retail sector by considering data relating to three main drivers: demand, profitability through gross margins, and the cost of running retail operations. In the second quarter of the year, running to the end of June, they put a score of 76 on the retail health index (RHI). That represents a fall from the previous measure of 77 and, says the RTT, puts the measure of retail health at lows last seen in 2012. If it falls further, as predicted, to 75 in the third quarter of the year, it will have reached an all-time low. Factors that influenced the measure included consumer uncertainty in the fact of a possible recession as well as continued uncertainty around Brexit.
James Sawley, Retail Think Tank member and head of retail and leisure at HSBC, said: “Speaking with retailers day in, day out, there’s no denying that they are facing some of the toughest trading conditions they’ve ever experienced. Looking at consumer demand in particular, the BRC-KPMG Retail Sales Monitor noted record low sales in both May and June this year.
“Trading is challenging both on the high street and online – and apparel is very much on the forefront of this battle at the moment. There are a number of issues impacting consumer confidence and retailers margins are under significant pressure. Online sales growth was recorded at just 5% growth for the last few months, so it’s not just the high street experiencing the strain.”
Mike Watkins, Retail Think Tank member and head of retailer and business insight at Nielsen, said: “From an economic perspective, consumers should be feeling more confident and flush in light of wage growth and low unemployment, but they are notably clawing back spend at the retail industry’s peril. Nielsen reported a fall in consumer confidence at the end of 2018 and there has certainly been a resetting of consumer spend, even within the grocery sector, since Easter this year. And, growth across grocery has been woefully low in recent weeks, even if you take the growth momentum of the discounters into account. While some of this might be attributed to the volatility of the British weather, in reality I believe retail as a whole faces some structural issues that may be amplified as we near closer to the next Brexit deadline in October.”
Spending set to be limited as consumers lack confidence
At the same time, the Deloitte Consumer Confidence Index found consumer confidence was unchanged at -8% in the second quarter of the year – four points lower than it was a year ago. The measure is an average of the percentage of consumers who said their level of confidence, as measured over six individual measures of confidence, improved in the past three months. The study takes into account household disposable income, debt levels, job security, job opportunities, general health and wellbeing and children’s education and welfare. The measure suggests that over the last quarter consumers’ confidence in debt, job security and general health and wellbeing were all down, despite official statistics showing UK unemployment at its lowest since 1974.
Deloitte’s analysts expects consumer spending to slow across all categories in the third quarter of the year. “Consumers are likely to limit spending as the benefits of stronger real wage growth are offset by concerns about the possible implications of Brexit, which could include slower jobs growth, gradual interest rates rises and subdued house price growth,” said the report.