UK retailers should get ready to face one of the toughest years ever as the British consumer “feels the pinch,” warns Verdict Consulting. Businesses are in for a hard time in 2008 due to a “dangerous cocktail” of intense competition, space saturation, consumer apathy and slowing spend, which
are all likely to mean that, on a like-for-like basis, retail spend will shrink in 2008. In addition, researchers at Consulting, a specialist division of Verdict Research, said some businesses would not survive the harsh conditions. Neil Saunders, Consulting director, said that over the past decade the economic environment had been benign and its impact on retail had been positive. But even so, the retail sector had become increasingly competitive, mainly due to ever expanding retail space which had given consumers more choice of where to shop and had spread profits more thinly between an increasing number of retailers and shopping outlets.
The report found that since 1998, net of closures, an additional 49m square feet of retail space had come into play. Although this was the equivalent of more than 1,600 average sized Tesco supermarkets, consumers were spending more, fuelling economic growth. But it will be a different story for 2008.
The report warned: “The amount of retail space due to open shows no sign of abating despite the fact that retail spending is set to slow dramatically. Over 2008, an additional 9m square feet of space (net of closures) will open. While this new space is likely to trade well, it will do so to the detriment of existing retail space. When the growth of the internet is taken into account, the amount of spend available for existing retail space will actually contract.”
Saunders added: “The UK consumer is going to feel the pinch in 2008 and this means one thing – for the foreseeable future, the era of solid year-on-year growth for retail is over.” Verdict Research forecasts that over the next ten years retail spending will grow by an average of 2.8% per annum, compared with an average of 4.9% over the last ten years. On a sector basis, the picture was more mixed, but compared to last year almost every sector in retailing was expected to see a slower rate of growth.
In a final comment, Saunders said: “We are not predicting disaster for the retail economy as a whole but there are undoubtedly rough times ahead which will sort out the winners from the losers – and not all of those losers will survive.”