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UK ‘one of the world’s most challenging retail markets’

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The UK has been ranked as one of the world’s most challenging retail markets, a recent report suggests.

The market is one of the toughest in the world for retailers to do business in, according to trader credit insurer Euler Hermes – along with the US, Germany and South Korea.

High competition, rising discounter market share and growing online shopping spend were all among the risk factors, according to Euler Hermes’ Retail, disrupted: pressure and potential in the digital age report. Its Digital Risk Scorecard benchmarked the UK retail sector against 12 key retail markets in terms of the intensity of external market forces on the sector, and the ability and awareness of companies in terms of digitalisation.

The study found that 81% of UK customers bought online in 2016: more than twice the European average. It found discounters had 10% of a market that was also the most competitive in the world. But, the study found, the sector is also the most prepared for challenges ahead, with retailers under the greatest pressure to transform their business model, compared to other countries analysed in the research.

The research found the UK was well positioned to embrace digitalisation, scoring highest in the Index for awareness of digital challenges and logistical efficiency.

The report comes as the financial standing of British retailers deteriorated in 2016 after several years of continued improvement. Average net gearing ratio increased by 10pp to 66% in the 12 months to December while average earnings before interest and tax (EBIT) fell 1.4% year-on-year to 5.6%.

Ludovic Subran, chief economist at Euler Hermes, said: “It’s clear the UK’s retail sector has reached a pivotal moment. The increasing consumer demand for seamless, omnichannel shopping experiences, the growing cost of a digital presence and the need to continually reinvent the mobile customer journey means that traditional retailers must urgently rethink their business models. Many will soon face a stark choice between evolution and closing their doors.

“Although British businesses are aware of these challenges and have a greater potential to change compared with their global counterparts, an uncertain economic outlook is expected to weigh down on retail sales. Our forecasts expect inflation to rise by 2.5% this year and a further 2.6% in 2018 as sterling continues to depreciate, stunting real consumption growth to 1.7% in 2017 and 1.3% next year. Against the backdrop of worsening macroeconomic prospects, Euler Hermes estimates the UK retail sector faces a medium risk level for non-payment.”

The survey draws on analysis from 1,500 Euler Hermes credit analysts and underwriters in 12 countries: Brazil, China, France, Germany, India, Italy, Japan, Russia, South Korea, Spain, the UK and the US.

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