UK retailers face a “fight to survive” next year as they face into a “perfect storm” of operating headwinds and lingering Brexit uncertainty, experts have warned.
The KPMG/Ipsos Retail Think Tank cautioned that a swathe of “geopolitical and macroeconomic obstacles” and “ongoing structural change” within the industry will spark an “inevitable” number of casualties in 2018.
In the last month alone, Toys R Us has launched a CVA in order to shutter stores and slash rents, while Multiyork and stablemate Feather & Black both slumped into administration, although the bulk of the latter’s business was ultimately rescued by beds giant Hilding Anders.
The think tank suggested that ongoing pressures will drive “increased levels of defensive consolidation and creative collaboration” between businesses as they attempt to grow market share.
This year alone, Tesco has been given the green light to acquire Booker in a £3.7bn deal and Amazon splurged $13.7bn on Whole Foods.
Last September, Sainsbury’s snapped up Argos for £1.4bn as consolidation began to ramp up across the industry.
But despite predicting more moves of that ilk to come, members of the group cautioned that retail growth will “flatline at best” in 2018, thanks primarily to the “weakness” of consumer spending.
Paul Martin, UK head of retail at KPMG and co-chairman of the think tank, said: “The UK retail sector continues to undergo fundamental structural change. With online now reaching close to 20% penetration of all retail transactions, the store-based business model – in its extent today – is threatened.”
However, the expert panel warned that online growth could plateau in 2018, in what could be a “pivotal” year for ecommerce.
Martin Hayward, founder of Hayward Strategy and Futures, highlighted that consumers have thus far been conditioned to expect free delivery at the expense of the retailer.
But he believes 2018 could mark a shift on this front as retailers begin to pass fulfilment costs on to the consumer.
“As the multichannel marketplace matures, fundamental truths need to be addressed by the industry as a whole, including understanding the real cost of home delivery,” Hayward said.
The think tank said it expected a “close correlation” between the outcome of Brexit talks and the overall health of the UK’s retail industry.
It suggested that a ‘soft’ Brexit could result in “meagre” growth, but warned a ‘hard’ Brexit could see the market contract.
“Continued uncertainty around Brexit and its implications is undoubtedly affecting consumer confidence, which is clearly on the wane,” Practicology boss Martin Newman said.
He added that, against the backdrop of fragile consumer confidence and lower real wage growth, “value retailers will take on greater significance over the next year, while at the other extreme, luxury brands will quite clearly weather the storm”.
Martin highlighted mid-market fashion operators as those likely to be the “main victims of a squeezed consumer wallet”, while veteran analyst Nick Bubb suggested the department store sector also looked “poised for a shake-out” in the coming year.