The Government’s fiscal austerity programme will create a five-year “crisis” for UK retailers as consumers rein-in spending amid tax rises, wage stagnation and low levels of savings, according to a report that draws lessons from the recessionary experiences of overseas retailers in the 1990s.
The report - conducted by retail consultancy Verdict for business analytics specialist PRGX - predicted that Government plans to slash national debt will likely leave UK consumers £2,240 worse off over the next five years.
Average household disposable income in the UK will fall from 38.3% in 2009 to 34.8% in 2015, the report also predicts.
“Rival retailers face a ruthless battle over slim spending levels,” the report warned.
The forecasts are based on an analysis of how retailers in Canada, Japan and Sweden were affected by government austerity programmes.
“There is some evidence to show that some [UK] retailers will go under [over the next five years] and store numbers will go down as they did in Canada and Sweden,” PRGX client services managing director Adam Simon told Retail Week.
He added that the number of foreign buyers of UK retailers could increase over the next five years, as happened in Canada and Sweden during the 1990s.
The Canadian government’s successful austerity programme, which made the bulk of its cuts by reducing public spending rather than by increasing taxes, has the closest parallels to the UK Government’s current austerity drive, the report found.
Although public spending was cut by about 15%, the impact on Canadian retailers was relatively minimal, with retail sales growing by 16% over the five-year period.
However, Canadian consumers could draw on much higher levels of savings compared with the average UK consumer, said Simon.
In addition, Canadian retailers leaned on exports, whereas UK retailers cannot because demand from other countries has weakened in the global recession.
However, the report found that the UK consumer is “very engaged with the retail sector” meaning retail spending is likely to be prioritised over other forms of expenditure”.