You could be forgiven for thinking that UK retail has finally turned the corner in recent weeks. Sales at Debenhams stores that have been open for over a year rose 1.9 per cent in the 10 weeks to August 31st.

You could be forgiven for thinking that UK retail has finally turned the corner in recent weeks. Sales at Debenhams stores that have been open for over a year rose 1.9 % in the 10 weeks to August 31st, and Next reported an 8.2 % rise in pre-tax profits to £271.8 million for the six months to July 2013.

JD Sports Fashion joined the party as well, after announcing that its first-half profits jumped several hundred per cent following a record 7.5% increase in like-for-like sales at its sports stores.

The exceptional performance of these industry heavyweights is certainly something to celebrate, but it’s worth noting that many other retailers are still struggling to make ends meet - and that some new hurdles may be on the way.

At this week’s annual Retail Industry Dinner, hosted by the British Retail Consortium, Jim O’Neill, former Chairman at Goldman Sachs Asset Management, cautioned retailers that those who are boosting the bottom line by sending their manufacturing to China, might be in for a nasty surprise.

Jim O’Neill suggested that the slowdown in China’s growth to 7.5% may have been deliberately engineered by the Central Politburo Standing Committee of the Communist Party of China (PSC), a committee comprised of the top leadership.

Why would the PSC want to do such a thing? Because independent assessments have suggested that the average citizens of China are not the real beneficiaries of the country’s rapid growth; a small number of wealthy entrepreneurs and other countries are.

If this theory is true and the PSC has decided to focus on cultivating its own consumer class at home, this decision could have major repercussions for UK retailers.

They could soon begin to see labour costs in China rise even further, along with an increase in the red tape associated with trading with overseas companies. So UK retailers that rely upon a supply chain based primarily in China may be hit with significant cost increases that could quickly detract from any gains made in recent months.

Like many economic theories, this scenario may play out differently of course, but it is still a good idea for UK retailers to see this prediction as a cautionary tale - and to consider this possibility sooner rather than later.

In fact, retailers that rely on China to provide inexpensive labour and cut-price manufacturing should begin to think of more innovative, flexible and entrepreneurial ways of reducing costs and improving their profits right now.

It’s always tempting to succumb to the lure of short-term financial incentives, especially at a time when the market is so challenging.

However, businesses that decide to wait for prices to rise overseas before making important operational changes like these are taking a major risk - and may find that they are unable to play the long game.

  • Dan Coen, director, Zolfo Cooper