Despite a gradually improving global picture retail in 2015 will still see a continuation of slow progress for many retail firms.
With retailers still examining their Christmas balance sheets for 2014 the indications for 2015 seem to be much the same as in 2014. In the UK the rise of discounters has continued unabated and we’re moving into a year of corporate austerity as mainstream retailers look for the cost savings necessary to compete on price. In the wider global market a similar scene has been set where opportunities are diminishing in a slightly uncertain global consumer climate.
In our report ‘Industries in 2015’ a global survey of retail and consumer goods executives looking at the next six months showed that respondents expect little to change as we move into 2015. This is matched by our forecast with a modest improvement in sales growth expected to take place. After a turbulent period a stable return to growth may be seen as ideal. The outlook for retail sales volumes in the coming year also hints at modest improvement. For Western Europe this could mean better times ahead, while in Latin America the outlook is even stronger.
|Retail sales volumes (% change) by region
|Asia and Australasia
|Middle East and Africa
Sources: Economist Intelligence Unit, Planet Retail
But as with all aggregates regional volume growth disguises some harsh business realities and there are a number of factors that could undermine progress. Sanctions in Russia, the Ebola outbreak in some African countries and fears of a slowdown in China will bring an element of caution to the strategies of retail firms. Asian growth levels are set to decline and European growth is only increasing by a tiny margin. It is worth remembering that Germany and France only narrowly avoided recession last year and elections in a number of European countries this year, notably Greece, could destabilise things further. Meanwhile falling oil prices and currency headwinds from the unpegging of the Swiss Franc to the unravelling of the Rouble and Argentinean Peso will add a further layer of volatility to investments abroad.
In China, softening sentiment, a property bubble in some cities and an ongoing clampdown on conspicuous consumption mean that retail growth is likely to slow further in 2015. Much of the impetus for growth will come from China’s rapidly evolving e-commerce sector. This is great news for the dominant Alibaba, which enjoyed a record-breaking IPO last year. However for bricks-and-mortar stores or those hoping to enter a concentrated online market the situation is more difficult.
There will be bright spots. After a poor 2014 Mexico is expected to help push Latin American sales growth forward, although currency weakness in December may have overshadowed this and concerns over Argentina and Venezuela remain.
E-commerce could provide a bright spot in India too, indicated by Alibaba’s own strategy there. IPO’s from the likes of Flipkart have provided a silver lining to a country where retail interest was dampened by the multibrand wrangling and the outlook for 2015 is much more positive, especially as Chinese growth slows. Growth in retail volumes in India is expected to surpass that of China for the first time 2015 and optimism over the policies of the new Modi government could create a compelling consumer story. India may also present a rare bright spot for UK retailer Tesco which has struggled both internationally and domestically. Tesco was the only firm to gain approval for a multibrand Indian retail venture before the door was closed in 2014.
- Jon Copestake, Chief Retail Analyst at The Economist Intelligence Unit