UK retail health expected to sink to record lows

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retail health
// Retail health deteriorates and may surpass historic lows, says KPMG/Ipsos Retail Think Tank
// The Retail Health Index fell one point to 76 in Q2 2019
// This marks the 13th consecutive quarter the index has either fallen or remained flat
// It’s poised to fall another point in Q3 to 75, which would make it the lowest score on record

The health of the UK retail industry has deteriorated more than expected in the second quarter, due to low consumer demand, cooler weather and further margin pressure.

The score of the latest Retail Health Index, compiled by KPMG and Ipsos Retail Think Tank, stands at 76 – the lowest score recorded since the the double-dip recession of 2012/13.

The drop in the index’s score marks the 13th consecutive quarter in which the UK’s retail health has either declined or remained flat.

The think tank pointed out that the score has not had any improvement since the start of 2016 – months before the Brexit referendum took place.

The think tank added that the index is expected to decline a further point in the third quarter of 2019, bringing the index to an all-time low of 75 if their predictions prove correct.

Consumer uncertainty in the face of a possible recession, as well as continued Brexit uncertainty, were noted as the key causes for concern for the industry.

“Speaking with retailers day in, day out, there’s no denying that they are facing some of the toughest trading conditions they’ve ever experienced,” think tank member and HSBC head of retail James Sawley said.

“Looking at consumer demand in particular, the BRC-KPMG Retail Sales Monitor noted record low sales in both May and June this year.

“Trading is challenging both on the high street and online – and apparel is very much on the forefront of this battle at the moment.

“There are a number of issues impacting consumer confidence and retailers margins are under significant pressure.

“Online sales growth was recorded at just five per cent growth for the last few months, so it’s not just the high street experiencing the strain.”

Mike Watkins, Nielsen head of retailer insight and another think tank member, said: “From an economic perspective, consumers should be feeling more confident and flush in light of wage growth and low unemployment, but they are notably clawing back spend at the retail industry’s peril.

“Nielsen reported a fall in consumer confidence at the end of 2018 and there has certainly been a resetting of consumer spend, even within the grocery sector, since Easter this year.

“And, growth across grocery has been woefully low in recent weeks, even if you take the growth momentum of the discounters into account.

“While some of this might be attributed to the volatility of the British weather, in reality I believe retail as a whole faces some structural issues that may be amplified as we near closer to the next Brexit deadline in October.”

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