Retail is now in recession and the health of the sector is likely to get worse before it improves, according to a leading group of industry experts.
The KPMG/Synovate Retail Think Tank (RTT), which meets every quarter to discuss the state of the industry in the UK, predicts that retail health will decline in the third quarter of 2011 having already slumped in the three months to July.
A statement published by the RTT indicated that the health of the retail industry in Q3 will reflect that of mid-2009, when the UK was in the midst of the banking crisis.
Helen Dickinson, Head of Retail at KPMG, said: “The retail industry is now definitely in recession with retail health likely to fall back to the levels of the banking crisis by quarter three.
“With further dark clouds on the horizon, such as threats to the stability of the Euro and the US dollar, none of the RTT members is feeling optimistic about retail in the short to medium term.
“It is however important to state that there are many very well-run British retailers for whom the current downturn will be just another test of their ability to survive and prosper and it is in them, and their incredible resourcefulness, that we must place our trust for an eventual retail health recovery.”
Retailers face mounting pressures with consumer confidence stalling, thanks in part to energy bill hikes and the coalition government’s austerity measures impacting on household budgets.
Meanwhile the RTT notes that rising inflation has slowed demand for goods, and the high level of promotions – which typically started earlier than usual this year - are set to have a major effect on businesses’ margins.
According to the think-tank, rising utility bills are not just a problem for consumers – they are being felt by retailers too. On top of high property rents in some parts of the UK and increasing fuel costs nationwide, there are so many areas where businesses are feeling the squeeze.
Neil Saunders, Consulting Director at Verdict Research, commented: “The only good news for retailers in quarter two was a sunny late Easter (Easter Sunday on April 24th was the latest for 11 years) and the royal wedding at Westminster Abbey on Friday April 29th.
“However, any expectation that they would boost trade for more than a couple of weeks was short-lived. May and June showed how weak the underlying trend remains.
“Pressure on disposable income with new, recently announced rises in utility bills has only hurt consumer confidence further and clearly many Britons are no longer regarding shopping as the pleasurable experience they once did.”
As well as Saunders and Dickinson, members of the RTT include Capital Economics’ economist Vicky Redwood, Synovate boss Tim Denison, Arden Partners’ analyst Nick Bubb, John Dawson from Edinburgh and Stirling universities, CB Richard Ellis’ Mark Teale and Richard Lowe, Head of Retail & Wholesale Barclays Corporate.