Opinion: KPMG's Paul Martin on what the interest rate rise means for retailers

Such was the anticipation of the move, it’s fair to say that businesses and households have certainly had time to prepare for the eventuality.

However, when retailers are embroiled in a seemingly endless array of headwinds, what does it really mean for the industry?

The latest increase marks only the second upward move in as long as a decade, and while it’s only a very subtle increase, that in itself presents retailers with their first hurdle to overcome.

A whole generation of consumers has undoubtedly become accustomed to cheap credit and have lacked a real incentive to save. And consumers’ increasing household debt has been much to the benefit of retailers seeking to capture that spend.

What’s more, to grab the attention of would-be shoppers in an oversaturated market, retailers have for too long marked down, despite rising costs, and consumers have binged on a diet of discounts.

All this makes the new direction of travel a bitter pill to swallow.

Immediate impact

It is important to say that UK retail will continue to grow, although the latest rate increase will inevitably impact consumer behaviour, even if ever so slightly to begin with. After all, the UK rate still remains just marginally above historic lows.

Purchases previously made possible by cheap credit will reduce as the cost of such an option rises, and retailers will find it harder to persuade shoppers to make that all-important purchase – particularly where big-ticket items are concerned.

“Even something a subtle as the latest base rate rise can act as a catalyst, speeding up the pace of change. Retailers must adapt accordingly and fast”

Retailers can’t afford to overlook price inflation or how sluggish wage growth has been, even when taking the low unemployment ratios into consideration. These factors have been squeezing the consumers’ purse from either end.

Meanwhile, looking at consumer spend more broadly, costs such as mortgages or car finance will increase in light of the rate rise, placing further pressure on disposable income. Yes, the waterhole from which retailers have been drinking continues to shrink.

This is nothing new, such arguments have been very publicly playing out for some time. The industry has been dividing into winners and losers, and it’s always been survival of the fittest.

But even something a subtle as the latest base rate rise can act as a catalyst, speeding up the pace of change. Retailers must adapt accordingly and fast.

Polarised spend

As the purse strings tightened in the wake of the Brexit referendum vote, shoppers very visibly began prioritising spend in favour of food versus non-food, while spend also began polarising between high-end and discount. This left the oversaturated mid-market exposed.

Casualties among mid-market players are only likely to increase, unless these retailers can drastically undergo business transformation as well as succeed in reinventing their purpose and point of differentiation in the eyes of increasing picky consumers.

“This may even entail closing the gap between their physical and online channels, with the latter seemingly having an easier ride”

As costs to the consumer rise, the prominence of the value channel – including discounters – grows, so it’s likely the battle on this front will heat up in the coming months.

Business efficiency will also attract further attention as retailers seek to improve their margins while offering their wares at an attractive price.

For many retailers, this may even entail closing the gap between their physical and online channels, with the latter seemingly having an easier ride.

Yes, adaptation and efficiency will be the primary focus areas for the retail industry across the board, when an event as simple as increasing base rates is significant enough to further accelerate the rewriting of the rule book.