Comment: Little retail growth likely at Christmas

So here we go again. The embers have died out on the bonfires and it’s nearly Christmas. Attention is turning to the high street to see how UK retailers will perform in their most critical trading period. This year is a tough one to call.

I’ve been looking back at Christmas retail sales over the past 10 years and it’s striking that the two most extreme performances, in terms of year-on-year sales, have been in the past two years. The worst Christmas of the decade was 2010, while 2011 was the best. This indicates how significant comparable figures are when it comes to reading this Christmas.

In year-on-year terms it would be foolish to imagine much growth being added on top of last year’s strong performance, and Christmas figures may appear poor as a result.

However, in the real world, the underlying picture of the second half of 2012 is that we are bumping along what we hope is the bottom. Making adjustments for store openings and closures, I would say UK retail is very slightly down on this time last year, perhaps by 0.5%.

What is more important is that retailers’ costs continue to go up while margins and cash flow are being squeezed, and this makes the trading climate very challenging. Higher utility and food prices, coupled with weak demand for non-food, make it difficult for retailers to raise prices.

This trading climate is not democratic. It is not about some sectors doing well and others badly, but more about individual retailers. Those able to provide good customer service and a distinctive offering are doing well, those that aren’t are slipping way behind.

Consumer confidence is on the up generally, and we should begin to see wages growth outpacing inflation, which in turn will go a long way to easing the burden on households. 

While household debt is being repaired, consumers are also displaying a greater desire to save rather than spend. I’m not convinced that a boost in consumer confidence, or even an increase in disposable income, will necessarily translate into people spending more money, at least in the short term.

As such, pressure is likely to continue next year, with further casualties and some rescues, including some secondary rescues. Some retailers that have been through insolvency processes in recent years have addressed their financial problems without fully tackling the root cause – their trading performance.

Meanwhile, there will be customer-focused, well-led retail businesses that thrive. Their success is down to taking business from competitors, capturing market share.

Capacity continues to grow as etail, through online, tablets and mobiles, takes an increasing share of spend. The aggregate cost of physical space in UK retailing is unsustainable and store closures will continue for years to come. However, remote retailing faces massive challenges too – not least customer service, which generally remains primitive.

These are fundamental strategic and structural shifts in the industry, and there is still a long way to go in shaking this through the system.

• Richard Hyman, strategic retail adviser, deloitte