Falling demand and margins hits retail health
Tuesday 26th April 2011
The state of the UK's retail health - as measured by the Retail Health Index - fell in quarter 1, according to new figures from the KPMG/Synovate Retail Think Tank.
The quarter marked the reversal of the mini recovery in retail health which had started in quarter 4, 2009.
The worse than expected decline was attributed largely to the softening of demand, brought about by consumers reining in spending in response to unforeseen increases in petrol prices on top of the drop in disposable incomes, as the gap between living costs and wage inflation grows.
The RTT was cognisant that the key Mother's Day and Easter spending periods this year are three weeks later than last year (Easter Sunday on April 24th is the latest for 11 years) and that this will have had some negative impact on March retail spending relative to April.
Retail margins as expected also suffered in quarter 1, as retailers extended winter sales, absorbed the VAT increase and promoted more heavily.
RTT Members agreed that things are going to get worse before they get better and predict that the RHI will deteriorate a further point to 84 in quarter 2.
Concern was expressed that the end of quarter 2 might signal a turning point for the impact of costs on retail health, threatening to become negative after nine quarters of positive or neutral impact.
The members discussed the increasing pressures on retail, in particular the effects of inflation, much of it in the supply chain and the rising cost of raw materials such as cotton and crude oil, which is effectively beyond the control of the Bank of England.
Mark Teale, CB Richard Ellis said: "A late Easter and the royal wedding will undoubtedly provide a short-term fillip to margins in Q2 but is unlikely to result in a significant improvement over the quarter as a whole."
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