Pressure eases says think tank
Published: 26 June, 2009
The group of industry experts expect the rate of retail business failures to slow because, even though profit margins are under pressure and customer demand is still declining, costs are now largely under control.
Although demand is still weak, it is better than many had expected and it has improved since the beginning of the year, reflecting the higher disposable incomes of many consumers, as mortgage costs and CPI inflation continue to fall.
However, the experts identified a number of factors that are combining to increase pressure on retailers, particularly the need to discount heavily to stimulate demand and the falling value of the pound for goods sourced in dollars or euros.
A spokesman for the RTT said: “Thankfully we can now begin to see a slowing in the rate of the decline in retail health. Although demand will continue to suffer, it seems that falling margins caused to an extent by global supply factors well outside most retailers’ control will begin to have a greater effect in quarter two. Psychologically, consumer confidence is still very fragile.”
The think tank’s members agreed unanimously that demand will remain weak in quarter two, although most were considerably less pessimistic than three months’ ago. Disposable incomes are now considerably higher than a year ago for many consumers.
However, the need to repay borrowings, save for a ‘rainy day’, and both the fear of unemployment and actual unemployment are holding back spending. The think tank found that there is a fragile balancing act between these two forces that will affect retailer performance over the next quarter and rest of the year.
Barclays director Richard Lowe summed up the thoughts of the RTT: “In quarter one, the impact of demand was the key downwards driver on retail health with margins coming a close second. However, costs were brought firmly under control providing a slight fillip to most retailers’ bottom lines. Overall it seems that as hard as retailers fight on one front, pressures from elsewhere chip away at overall profitability.”
