Tough times expected for retail sector during Christmas, says industry report

Retail sector in the UK is heading towards tougher times during Christmas period as constantly-increasing rising prices of consumer goods may play the spoilsport, says a recent report by industry think tank.

According to the latest assessment by the KPMG/Ipsos Retail Think Tank (RTT), substantial rising costs across every element of retail from wages to logistics and energy have already led some retailers to issue profit warnings. And despite expectations of bonanza consumer spending at Christmas, the RTT’s Retail Health Index (RHI) is predicting flat growth for the final quarter of the year.

As rising costs are likely to outweigh demand, it is expected that retailers will have to work harder in the weeks ahead to maintain profitability, says the report, adding that lower volumes of stock due to availability issues are also expected to have an impact on retailers over the next three months. Additionally, very little discounting is expected in the run-up to Christmas, both for food and non-food retailers.

Commenting on the prospects for retailers for the next quarter, Paul Martin, Head of Retail at KPMG in the UK said, “consumer demand over the last six months has seen the retail sector get back to healthy growth levels, however we have now reached a tipping point where the level of demand is not strong enough to offset the huge surge in costs that retailers are experiencing.

“The next quarter is the most important in the retail calendar but a concerning downward trajectory in the sector’s health prospects has already begun. Consumer confidence is starting to slide as the cost of living rises, but we are expecting consumers to use savings made during lockdown to splash out on a bonanza Christmas this year, given plans had to be shelved last year.

Andrew Firth, RTT panel member from Ipsos Channel Performance, said : “Despite some inflationary pressures coming through, high demand from consumers is protecting retail margins.

“Many of the grocers are happy to absorb some pressure on margins to protect their sales through to Christmas and with consumer demand remaining high they are not seeing the need to drive footfall via huge discounts.”