Verdict Research is predicting just 8.1% growth in the UK over the five years to 2013, a massive drop from the increase of 14.1% in the same period to 2008 [1]. “The good news though is that survivors will find themselves in a far less competitive environment, with major opportunities for market share gains and winning new customers,” Verdict says.
2009 will ultimately see retail hit rock bottom
Despite the retail downturn being very much a prolonged affair, 2009 will be the year in which the market is at its weakest, with the first negative growth since Verdict Research’s records began way back in 1984. Total UK retail will decline by 0.6%, or £1.7bn, whilst non-food spending will decline by 3.0%. “This will inevitably mean more hard times for retailers and more significant casualties”.
The UK’s economy, including the housing market, will remain unstable over the period, undermining both consumer confidence and spending power. The main driver of the decline though will be rocketing unemployment. “Unemployment will not peak until late in 2010, as cutbacks continue to spread outwards from the financial sector, to affect all areas of the UK workforce,” says Malcolm Pinkerton, Senior Retail Analyst at Verdict Research and author of the report.
Recovery will take a longer time
The economic crisis is more severe than any for decades and will therefore take a much longer time to recover from. “At present it seems we are still facing a considerable wait before the bank’s balance sheets are sufficiently stable for them to resume a high degree of lending again,” adds Pinkerton.
Indeed, the return to economic growth will not necessarily herald a retail recovery. Verdict Research is predicting a return to positive GDP growth in 2011, yet non-food growth in 2011 in the UK will be just 1.1%. “The truth is that retail very much has problems of its own,” says Pinkerton.
Fundamental changes to consumer psychology
Indeed, the recession is not merely fostering a temporary change in consumer mindsets, agrees Matthew Piner, retail analyst at Verdict Research and the report’s co-author, but providing the catalyst for a long-term transformation. “By the end of this downturn, shopper psychology will be irreversibly changed from that of the heady days seen in the late 90’s and early part of this decade,” he says. “Shoppers from the lower socio-economic groups in particular will have formed a more price conscious outlook and an intolerance of taking on debt to fund retail expenditure.” As such, non-food retail growth in the UK will be just 2.1% and 2.5% in 2012 and 2013, a much more reserved level than the average 6.3% annual growth seen through the nineties.
Retailers need to evolve
Retailers will have to adapt in varying ways, but innovation, differentiation and exclusive products will need to become an integral part of retailers operations. “Retailers will have to learn to balance the new consumer desire for quality, timeless products, with the need to drive shorter replacement cycles for areas where consumers are instinctively cutting back,” says Piner. “They will have to compete harder on the entry price items upon which consumers are more sensitive, whilst becoming more adept at adding value to higher priced products.”
Merchandising will also need to become more efficient, both in a logistical sense and in terms of driving sales.
