Overall operating costs continued to rise at a punchy 3.7% for non-food retailers, as labour and rents drove up the lion’s share of costs in Q1 2017.

Labour ▲

Labour costs rose by 3.6% in Q1 2017 compared with the previous year.

This was down on the previous quarter when labour costs rose by 4.9%. Looking forward, labour costs are expected to accelerate in Q2 2017 to reflect the rise in the National Living Wage to £7.50.

Rent ▲

Rental costs rose on average by 4.6% in Q1 2017 compared with the previous year.

This was marginally down on the previous quarter when average rents rose by 4.7%. Retail warehouses reported a marginal drop while there was a robust rise across prime locations.

Distribution and fuel ▲

Transportation costs rose markedly on the previous quarter as the rise in oil prices and sterling denominated petrol saw the impact of the pound’s post-referendum slump. Fuel was the fastest growing component.

Rates ▲

The continuation of the 2% cap on business rates, implemented in 2014, means cost increases across multiple retailers has remained constant.

The revaluation, which came into effect on 1 April 2017, is revenue neutral but will impact retail properties in London and the South East disproportionately. 

Advertising and central costs ▲

Advertising and Central Costs rose by 1.1%, year-on-year, driven by rising costs in Information and Communication and Accommodation.

This was down on the previous quarter when costs rose by 2.0%.

Utilities ▲

Rising costs of Electricity and Water and Sewerage pushed up overall utility costs by 2.2% compared with the same quarter last year.

Wholesale electricity has risen markedly on last years levels which has pushed up overall prices.

Labour costs contributed just under half the rise of all operating costs for food retailers.

Rental costs contributed 0.6 percentage points to the overall increase in operating costs for non-food retailers. 

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Methodology

The cost base index is a measure of operating costs facing retailers. The index measures price movements across six key cost areas facing retailers including labour costs, rent, distribution and fuel, business rates, advertising and other central costs and utilities.  

Categories are weighted using research from ONS, company financial reports, retailer panel surveys and other third party research to derive the top line index.

Retail Economics is an independent economics research consultancy focusing exclusively on the UK retail and consumer industry. Our subscription service empowers you with a deeper understanding of the key economic drivers supporting the UK retail industry, providing a competitive edge needed to make critical business and investment decisions.  

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