Third quarter will challenge retailers
The UK retail sector is in a 'fragile and nervous state' going into the next quarter, according to the new KPMG/SPSL Retail Think Tank (RTT).

Looking at the prospects for demand, margin and costs over the next three months, the RTT concluded that the retail sector was entering a tricky period as the growth of demand slows at the same time as options for further cost-cutting are declining.

The group said gross margins were remaining steady as a result of the hard work by retailers over the past year, but the high street is 'fast running out of ways of maintaining the status quo - let alone improving upon it'.

The RTT said demand had increased between April and July, largely driven by the food sector. However, the World Cup had a largely neutral effect and a continued hot summer could suppress demand further.

The think tank also concluded that costs will continue to rise during the next quarter, but at a slower rate. The increase in the minimum wage from£5.02 to£5.35 per hour, due to come into effect in October, will provide a further challenge to retailers at the end of the period.

RTT member Professor John Dawson said: 'It is a fine line the sector is treading. As growth in demand slows and costs increase, it may well only need one incident - an interest rate rise, or a fall in consumer confidence or house prices - to provide the tipping point after which retail health takes a turn for the worse.'