Next year looks set to be as tough as 2012 for retailers, with “shaky consumer confidence” likely to continue into 2013.
A study conducted by the KPMG/Ipsos Retail Think Tank found that the impact of the sluggish economy on trading conditions and consumers’ disposable income levels will remain the “key challenge facing the retail sector in 2013”.
“Austerity Britain is here to stay and 2013 will feel remarkably like 2012,” said David McCorquodale, head of retail at KPMG and a member of the Retail Think Tank. “The lack of economic growth and shaky consumer confidence will result in yet another year of deferred discretionary spend, especially for retailers selling big ticket items.”
Despite record numbers of shoppers visiting retail websites on Boxing Day - Experian said visits were up 17% to 113 million – 2012 has been a tough year for retailers, with store groups including Game, Clinton Cards, Peacocks and more recently Comet hitting the wall.
Vicky Redwood, chief UK economist at Capital Economics, said the squeeze on disposable incomes is set to continue next year, and that real pay is “likely to fall further” in 2013, with inflation continuing to outpace pay growth.
“Although the Autumn Statement contained a few sweeteners for households, a number of cuts already announced are still set to go ahead this year,” said Redwood. “Together, these will knock 0.8% off households’ incomes in 2013. And public sector employment is likely to fall further.”
McCorquodale added that increased overheads, including rising business rates, will also hit retailers in 2013. Retail Week and the British Retail Consortium are jointly lobbying Government to freeze business rates next year through the campaign Fair Rates for Retail.
The study also found that a lack of quality large format prime retail space could curb retailers’ expansion plans in 2013. Mark Teale, head of retail research at CBRE, said: “Speculative development activity is at a record low. Instead developers are undertaking small extensions to established schemes.
“With little new space coming on stream, primary shortages are becoming more and more acute. The dearth of speculative development has left large store expansion plans in tatters.”
Neil Saunders, managing director of Conlumino, said technology will continue to be a key battle ground for retailers in the fight for spend.
“Technology is an area of real growth and we can expect to see exciting innovations around payment technologies, augmented reality and personalisation. All of these things will provide a boost in 2013 and will help retailers to be more responsive to customers and, consequently, drive up things like conversion rates and transaction values,” he said.
The report also expects retailers to expand overseas to counteract the unstable domestic market.
Richard Lowe, head of retail and wholesale at Barclays, said: “The borderless retail landscape created by e-commerce means that it is easier than ever before for retailers of all shapes and sizes to tap into new markets. By adopting online strategies, retailers can test local appetite for brands and products without having the associated overheads of opening physical stores.”