Comment: what would an interest rate rise mean for retail supply chains?
The retail industry is ultimately dictated by consumer demand. No matter how good your products, advertising, store layout or supply chain; if customers dont have the required funds to purchase your goods, sales figures are never going to hit their targets. By Hilary Devey, CEO of Pall-Ex.
The UK interest rate is one of many outside influences that impact upon the retail industry, as it directly effects the amount of money people have available to spend.
Since the recession, we have all become accustomed to UK interest rates sitting at 0.5%, as set in March 2009. This rate was set in an effort to keep people’s monthly mortgage payments down and money in their pockets, which has helped to keep the retail market moving through tough times.
At some point though, interest rates will of course have to go back up towards the normal pre-recession levels that we have been used to over the past 20 years, usually fluctuating somewhere between 4% and 6%. The latest rumblings from the Bank of England have experts predicting that this will happen sometime in early 2015, but what will it mean for the retail and logistics industries?
Any sort of rise will hit the pockets of those with mortgages, as monthly repayments on variable rate agreements will increase. This will leave people with less money to spend in the shops. I would expect to see retailers of essential items making it through pretty much unscathed; but clothing and footwear brands, especially those that sit in the mid-price range, could notice a detrimental effect.
Retailers will have to look at ways to either cut back or make existing systems more efficient. Improving stock management may well be the answer for many. Tracking software that provides details of customer preferences while monitoring deliveries with real-time shipping information, will allow retailers to build accurate predictions of what stock might be needed at their specific distribution centres and stores. Gearing up for what could be tougher times by ensuring the supply chain is as robust as possible will put retailers in the best position to survive and even succeed in hostile trading conditions.
The benefactors of an interest rate rise will be individuals with high-net worth. Savings accounts have suffered badly in recent years, with the low rate meaning very little money can be made through ‘sticking cash in the bank’. Those with savings and with no outstanding mortgage will be looking forward to a rate rise, as they start earning from their money again. This effect could benefit retailers, as people with savings feel more confident in spending their money. Again, early investment in systems such as efficient stock management will put these retailers in a position to lead during a drive in sales.
In recent years we have witnessed a steady recovery of the retail market since the recession, having been helped by low interest rates. The coming 12 months will be a key period for everyone as retailers need to prepare all areas of their business, especially their supply chains, in order to put themselves in the best position to ride out the likely drop in consumer confidence following an interest rate rise.
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