RETAIL MARKET ANALYSIS

Retail Market Analysis

Retail Market Analysis

Overall review

The UK has been emerging from one of its worst recessions since the 1930s, which saw the economy contracting by almost 7%. Economic output is not expected to return to pre-crisis levels until 2012. Whilst the UK is accepted to be on the right track in terms of recovery, with the risk of deflation thought to have passed, warnings still resound concerning the bumpy ride ahead, as the economy slowly trundles towards stability. Threats to the UK's recovery now include a set of external issues, such as rising commodity prices, a new crisis in sovereign debt markets or a sudden contraction in the US economy (Centre for Retail Research 2011, 1).

As part of its emergency budget, the government announced a rise in VAT to 20%, major cuts to benefits and welfare payments. An increase to 28% in capital gains tax for those earning over £49,700 annually - with the average worker expected to be £400 worse off per year. UK economy has deteriorated since the fall. After four consecutive quarterly increases, GDP fell by 0.5% in the last quarter of 2010. The unemployment rate reached 8% (ILO definition) in January 2011. Inflation accelerates and was 4.4% year on year in March, in terms of index of consumer prices (HICP), instead of 3.1% six months earlier. The deficit reached 10.2% of GDP in 2010, bringing the public debt to 76% of GDP.

Concerns also abound concerning the high level of unemployment which persists in the country, expected to reach 8% in 2011spelling potential disaster both for the economy and the government, since job creation remains crucial to successful recovery. Retail sales showed further growth in current value terms, in 2010, but at a continuing slow rate. The unstable economic situation resulted in consumers continuing to take a fairly cautious approach to their spending. There was a noticeable shift in where consumers chose to shop, with no longer being considered embarrassing to be seen to be bargain-hunting. The big four supermarket chains faced increasing competition from cheaper retail channels such as discounters and internet retailing, with supermarkets and hypermarkets seeing falling growth in current value terms. These outlets had to defend themselves from serious contenders for weekly shopping sales for the first time towards the end of the review period. As a result, the grocery industry saw aggressive price wars (Centre for Retail Research 2011, 1).

Many supermarkets attempted to emulate Poundland's successful model by slashing prices to a whole pound. Even in traditionally higher-end supermarkets, attempts were made to increase sales by offering cheaper private label product ranges, with 2009 seeing Waitrose launch its Essentials range, whilst Tesco and other supermarket retailers focused on expanding their budget ranges. In a further clear illustration of the hardships facing many consumers, clothing and footwear specialist retailers saw a decline of 1% in 2010, whilst furniture and furnishings stores saw its sales tumble by 5% in the same year, as consumers simply cut out unnecessary spending and postponed buying new ...