General UK retail outlook improving

For the first time in two and a half years the general UK retail performance has improved. However, unless something changes the second quarter of 2013 is set to “flat line”, according to the Retail Think Tank.

Following its quarterly meeting in April, the KPMG/Ipsos Retail Think Tank (RTT) reported that the downward trajectory that has plagued UK retail since the start of 2011 finally turned around in quarter one of 2013, although a significant increase in the health of UK retailing is unlikely to arrive any time soon. The RTT’s Retail Health Index improved one point to 77 points, thanks to a marginal lift in demand, which would have been better still had it not been for the prolonged extension of wintry weather throughout the whole quarter.

The RTT agreed that overall Christmas trading figures had been relatively good, and that there were very few new casualties coming through now – the consequence of better run businesses and an uplift in demand.  Details about the different sectors are perhaps irrelevant to those of us interested in the tyre business and automotive parts in general. However, what they do offer is an insight into consumer confidence. For example while the food sector was something of a start performer, food margins remained broadly flat. And extra discounting was necessary to stimulate clothing sales in particular, and some major players remained heavily promotional led in the quarter (notably Debenhams and M&S). The logic is that if people are scrimping on clothes they won’t necessarily have disposable income to spend on tyres. But once again because of the unique type of product context tyres are sold in, what it may mean in practice is that rather than fewer tyres being sold it will the fight will really be over which tyres are sold. And, again the fact, that retail outlook is improving in general may suggest that people will spend a bit more on tyres.

However, the broad retail situation remains “very mixed” and the RTT report suggests confidence is likely to remain weak because “the recent employment growth is expected to tail off, inflation is on the increase again, and with fuel and energy prices set to rise.” However, looking more optimistically, there is some support for increased spending from the fact that recent changes in income tax thresholds and better flowing lending. 

Commenting, David McCorquodale, Head of Retail, KPMG UK, said: “Overall the quarter was quite an even one for UK retailers as demand, margins and costs all remained relatively static and it looks like we’re at the bottom of the decline.”

Vicky Redwood, Chief UK Economist at Capital Economics, said: “It’s a mixed picture.  We have seen more employment growth during the quarter, mainly part-time jobs and individuals setting up their own companies. Also, more people are looking for work as they come off benefits or come out of education. Consumers are more inclined to spend because it has become easier to borrow and at the moment there is less incentive to save. However, employment growth is tailing off a bit incomes will again be squeezed in the coming months so nothing is certain. Everything is stacked against the consumer, but they keep on spending.”

So while quarter one delivered some very welcome results, whether we see any release of pent-up demand in the next quarter is open to discussion. There are some positive signs, but especially in the tyre industry it is too early to say. What is even less clear is what effect this will have on the segmentation of the UK market as and when such effects kick in.