Research released by Capital Economics today reveals retailers’ cost pressures could be easing and there is cause for optimism in 2013. Retail Week takes a look at five of its points.
Commodity prices could ease
Capital Economics analysts Roger Bootle and Vicky Redwood believe the outlook for commodity prices could improve in 2013. Capital believes demand for oil remains “soft” and improvements in energy efficiency and the development of alternative energy sources could also allow prices to ease. Crude oil prices could fall from $112 per barrel to $85 next year impacting positively on transport costs which make up 5% of retailers’ expenditure.
Food price inflation could be short-lived
Despite a short-term rise in food prices as a result of the supermarkets passing on some of the rise in wheat prices; prices have not risen at the same rate as they did in 2007 and 2010 and sugar and cotton prices are on a downward trend. “On the basis of past form, sterling’s rise points to the price of imported consumer goods falling at an annual rate of about 5% in the coming months,” the report states.
Labour costs may decrease
Bootle and Redwood believe that there are efficiencies to be gained in retailers’ workforces in the coming year. Output per worker is 8% lower than it was pre-recession reflecting a shift towards part-time working and there is room for improvement. High unemployment has weakened retail employees’ bargaining power more than in other sectors allowing pay increases to pose less of a threat to margins.
Property charges could fall
Despite the proposed rise in business rates set to cost retailers £200m, reforms are in the pipeline for the Retail Prices Index and Capital Economics forecasts the cost to retailers will be £150m in 2014. “What’s more, the pressure from higher business rates is being offset by falling rents. New retail rents have been falling for more than four years,” the reports says.
Finance could become cheaper to obtain
The outlook for corporate finance deals has improved as evidence by Ocado’s extension of its £100m debt facilities by 18 months revealed yesterday. On the back of the Bank of England’s Funding for Lending scheme a number of lenders have introduced new products aimed at companies.
The report concludes: “Although the continued reluctance of consumers to spend is likely to mean that retailers’ pricing power remains weak, there is still scope for them to become more profitable in the coming years.”