Demand drives the UK retail market forward: KPMG/IPSOS Retail Think Tank
Following its quarterly meeting in April, the RTT has revealed that its Retail Heath Index rose by one point to 80 in the quarter to match the RTT’s forecast made in December.
Members of the think tank also expect a similar rise in the second quarter of 2014 which they say confirms that retail health in the UK is improving “slowly but surely” after a disappointing end to 2013.
Of the three key drivers of retail health – demand, margin and cost – margin and cost both remained flat in the quarter. However, the RTT said an increase in demand from consumers driving strong sales in January, which tailed off slightly in February and, through Easter’s timing, in March, helped deliver an increase in like-for-like sales on Q1 of 2013.
Food sales struggled in Q1 as trade was affected in part by the bad weather and floods across the south of the England and also by price deflation. However, the RTT said competition between supermarkets in the quarter continued to be fierce with those dominating the market feeling the squeeze by both high-end and discount players. It predicts that plans for a “price war” in Q2 will only make matters worse with costs relating to online offerings, delivery schemes and self-service also impacting the health of the sector.
The RTT concluded that clothing and footwear retailers had a better first quarter than expected which helped boost the overall assessment. DIY on the other hand, failed to take off quite as expected but garden centres benefited from better weather in March.
Looking ahead to Q2, the RTT cites rising consumer confidence and growth in disposable income as strong indicators that demand will not tail off in the period. A rise in demand is expected to take pressure off margins as will the ongoing work that retailers are undertaking to improve their pricing architecture.
Dr Tim Denison, head of retail intelligence at Ipsos Retail Performance, said: “Q1 has been a difficult quarter to assess, given the fairly turbulent sales figures, the stark differences in pressures between the food and non-food sector, and the absence of Easter in the quarter. Overall health appears to be edging upwards, but in truth it is difficult to call until we see performance figures from April.”
David McCorquodale, head of retail, KPMG UK, said: “Demand will continue to be on the rise in the second quarter of 2014. A late Easter alongside early good weather and wage rate inflation will drive demand. The strong showing of non-food sales in Q1 looks set to continue through spring into summer.”
Members of the RTT are:
- Nick Bubb, Independent Retail Analyst
- Dr. Tim Denison, Ipsos Retail Performance
- David McCorquodale, KPMG
- Neil Saunders, Conlumino
- Richard Lowe, Barclays Retail & Wholesale Sectors
- Mark Teale, CB Richard Ellis
- Martin Hayward – Hayward Strategy and Futures
- James Knightley - ING
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