Insight: UK retail could get worse before it gets better in 2018

The latest predictions from the KPMG/Ipsos Retail Think Tank show that the sector will face a growing number of regulatory compliance issues and ongoing structural change.

Members of the think tank have predicted that consumer spending will be the main area of weakness for the sector as disposable income is squeezed by stagnant wage growth and elevated inflation, although real incomes are expected to improve in the second half of 2018 as inflation eases.

Before this happens, the think tank believes the divide between food and non-food retail will become more pronounced, with non-food sales hit by inflated food prices.

Looking at online retail, members have pointed to signs that growth may be starting to slow. Martin Hayward, founder of Hayward Strategy and Futures, highlighted how well integrated multichannel businesses are proving popular with consumers and how online ‘pure players’ are beginning to open physical stores. 

He added: “As the multichannel marketplace matures, fundamental truths need to be addressed by the industry as a whole, including understanding the real cost of home delivery.”

While consumers have been conditioned to expect free delivery at the expense of the retailer, Hayward thinks that 2018 may mark a shift on this front with the cost increasingly passed onto the consumer in one form or another.

Regulatory and compliance issues were also raised as a major concern for 2018, particularly the upcoming General Data Protection Regulation. While the regulation will increase the number of challenges for retailers, the think tank said it could also offer retailers the chance to work with their data and review what customer insights they actually have at their disposal.

Linked to this, Martin suggested that “reputational risk is becoming increasingly important for the C-suite” and highlighted how compliance for GDPR is “non-negotiable”, with penalties for non-compliance as high as 4% of global revenue in some instances.

Brexit was also a key consideration for 2018 for the think tank members. They expect to see a close correlation between the outcome of Brexit negotiations and the overall health of the industry, with a ‘soft’ Brexit resulting in meagre growth, and a ‘hard’ Brexit potentially seeing the market contract. 

Members said details on any future trading agreement, as well as a transitional period, will be the key areas of focus. As a result, they stress that retailers should remain cautious and continue their contingency planning.

They also predict that much of the retail fight in the coming year will revolve aroud market share and remaining relevant to consumers.

Tim Denison of Ipsos Retail Performance said: “Retailers will be working manically behind the scenes re-inventing the ways inwhich they deliver that all-important customer experience.”

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