UK retailers are likely to witness a decline in their business in Q4 2017, bucking the four-year trend of retail health not downturning between the third and fourth quarters, says a report. However, Q3 2017 brought some respite with improving demand in summer contributing to a better performance for retailers, holding off a third consecutive drop this year.
In recent years, demand amongst consumers during Black Friday sales and Christmas has been the primary driver for maintaining the state of retail health in the final quarter. However, this year may be different, according to the latest finding of the KPMG/Ipsos Retail Think Tank (RTT). With Christmas shopping usually propping up fourth quarter's performance, the RTT felt that, this year, the increased pressure on cost and margin, coupled with the full impact of currency hedging unwinding and wage deflation, will result in retail health falling back in the fourth quarter.
"The end of the year would see many retailers entrenched in a cycle of deep discounting in an attempt to drive up demand at the expense of margins. Further damage to margins will be felt by the full effect of currency hedging unwinding – with many retailers locked into poorer dollar currency rates for the remainder of the year," RTT said.
Cost continues to be an issue for retailers across all areas of the sector, with substantial investment taking place to both improve internal productivity, and deliver a true multichannel offering to customers. The expense of fulfilment for home deliveries will continue to impact on retailers’ costs and squeezed margins. This is predicted to intensify in the fourth quarter, with RTT expecting online sales to make up a higher percentage of total sales throughout Christmas and Black Friday promotional activity.
"After some welcome respite in the third quarter, this coming quarter looks more challenging. The state of retail health is in danger of reaching a tipping point not seen since 2012, when the festive ‘shot in the arm’ isn’t enough to counteract the ongoing issues with rising costs and squeezed margins," Dr Tim Denison, head of retail intelligence, Ipsos Retail Performance, said.
"Many retailers saw an improved performance in the third quarter, with cooler than usual autumnal weather boosting the apparel sector, which has had a difficult year to date. Continued macro-economic uncertainty and potential interest rate rises looming on the horizon could dampen consumers’ spending in the run-up to Christmas and therefore, forecasts for the golden quarter are not looking bright. The next few weeks’ trading will determine whether or not 2017 is a success or failure for retailers," said Paul Martin, head of retail at KPMG UK. (RR)
Source Fibre2Fashion News Desk – India