Jan 4, 2021
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Retail Think Tank optimistic for second half, despite tough festive season

Jan 4, 2021

As the vaccine rollout continues, there’s some optimism for UK retail in the second half of the year, despite a bleak Christmas period for many and an acceleration of negative trends.

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Ipsos Retail Performance’s Retail Traffic Index (RTI) showed shopper numbers in the five days leading up to Christmas and on Boxing Day down 64.4% year-on-year and 38.8% week-on-week. 

But this wasn’t just to do with lockdowns as Christmas Day falling on a Friday (rather than Wednesday in 2019 due to the 2020 leap year) meant numbers weren’t bolstered by more post-Christmas sales days.

And Boxing Day was a huge disappointment as lockdowns kept stores closed. But while the number of shoppers venturing out to non-food stores fell a massive 65.9% on the year and 70.2% week-on-week, the decline was actually the fifth fall in as many years so was part of a long-term trend.

Does this mean the outlook is bleak for retail in 2021? Not necessarily. The KPMG/IPSOS Retail Think Tank’s (RTT) latest deliberations have actually seen it issuing a fairly upbeat forecast for the sector this year, although the good news won't really come until the second half.

The think tank is predicting sales growth of somewhere between zero and 3% in 2021 overall due to a weak first half. But later on, “pent-up savings and demand, a more confident consumer, and a successful vaccine rollout will all help to support the recovery of the retail sector”.

But much like 2020, “fortunes will be mixed for different retail categories, because consumer behaviour will continue to evolve, as many people roll back some of their new behaviours whilst others become permanent”.

In the short term, the RTT said “there are still very tough times ahead in large parts of the country well into Q1”.

And other challenges include business rates, which currently account for up to 50% of retailers’ property costs, “well above those in other sectors and contributing 25% of all business rate revenue raised”.

RTT member Nick Bubb, an independent retail analyst, said the business rates issue “requires urgent attention from the Government. It’s clear that inequality does exist within the current model — specifically in terms of purely online platforms which have been some of the biggest ‘winners’ of the pandemic. Perhaps one avenue to explore would be a reworked business rates system which levies taxes on the distribution and warehousing space used by online retailers, helping to reduce the burden on the high street”.

Meanwhile, RTT member Martin Hayward, founder of Hayward Strategy and Futures, summarised the RTT’s point of view by saying he’s “sceptical” 2020’s behavioural changes will “result in a permanent shift”.

He added that he expects most people “in the end, to return to their pre-pandemic behaviour. When it’s deemed safe to do so, there will be household bubbles bursting with savings to spend and some high streets and shopping centres will see a return to normal levels of footfall.” 

And the RTT thinks “the longer-term direction of travel for the retail sector hasn’t altered due to Covid-19, rather it has accelerated the need for business models to change to keep pace with improving technology and evolving consumer expectations”.

As a result, it thinks investment from retailers in new technology will continue to increase in 2021, and “will pivot from the store openings and refurbishments, to the back office and fulfilment centres”. 

Member James Sawley, Head of Retail and Leisure at HSBC UK, said we should forget delivery drones and in-store robots. He thinks “retailers should instead be seeking out technology that drives efficiency and improves margin, and I expect most to be looking at investment into AI and automation within their warehouses and supply chains – something that will be especially important if the end of the Brexit transition period reduces the availability of staff currently working in these parts of the business.”

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