UK economy shows signs of recovery with best retail growth in six years expected
27 December 2013 - UK retail is set to grow by 2.4 per cent in 2014 with total retail spend hitting £324 billion, reflecting modest signs of recovery and a rise in positive consumer sentiment, However, despite being the highest growth in retail for six years, pick-up remains slow, held back by high personal debt levels, negative headwinds from other parts of the global economy and inflation.
According to a new report by global business analytics leader SAS and retail analysts Conlumino, while UK consumers are a bit more secure, and this is reflected in their spending, they do not expect things to get much better quickly. The majority of the population still have a bleak outlook when it comes to personal finances, expecting essential living costs to rise sharply in the next six months. Only when disposable income begins to grow again is the recovery expected to really take hold.
The SAS and Conlumino report entitled Retail in 2014: Trends and Winning Strategies shows that food will represent the vanguard of growth, with a predicted spend of £148.3 billion – up 3.9 per cent from 2013. However, the sector faces a daunting array of challenges as volume growth will be negligible with shoppers looking to offset persistently high inflation. With consumers shopping around more and becoming less loyal, larger players such as Tesco and Morrisons will see their share gradually eroded by the likes of Lidl and Aldi at the value end, and Waitrose at the premium end.
The outlook for clothing & footwear is more positive than it has been for some time – it will see 2.6 per cent growth with tailoring, especially British-made, giving a real boost to menswear. Elsewhere, design innovation and a proliferation of new brands are stimulating growth in accessories and young fashion. The health & beauty sector – which will see 3.7 per cent growth - is benefiting from consumers increasingly seeking small outlets for indulgence, along with the longer term trend of shoppers generally becoming more health-conscious as part of an ageing population.
At the opposite end of the spectrum, home is set to be one of the weakest performing sectors over the next year, reflecting the reticence of shoppers to make big purchases in non-essentials. The home entertainment sector will experience the most significant fall in size over the next 12 months, reflecting the UK consumers' continued shift towards digital distribution and, in particular, subscription services.
Neil Saunders, managing director at Conlumino, comments: "Over the next year we will see a shift from careful consumption to considered consumption as shoppers put perceived value rather than price at the core of purchasing decisions. Demand is becoming more polarised, which means it is crucial for retailers to develop strong, tiered ranges with sub-brands, such as low, medium and high value product ranges, that stand out in their own right."
Alex Fovargue, retail specialist at SAS UK & Ireland, said: "Today's multichannel, value-seeking consumers leave clues about their shopping habits and changing sentiment every day via online browsing, apps, loyalty schemes, reviews, social media and location-based technologies. Winning retailers will be those that collect this information and use big data analytics to gain fact-based insight to forecast demand, optimise pricing, adapt to changing economic conditions, personalise marketing and add value.
"Ultimately this gives retailers the power to know more about shoppers and provide them with the right product, for the right price, at the right time, via the right channel. At a time where the consumer mindset has moved to a more considered approach – based on what they believe offers value and quality – retailers that develop a more personalised approach will have a clear advantage."
Conlumino has also developed a series of reports focusing on overall retail sectors: food & grocery, health & beauty, furniture & floorings, homewares, electricals, home entertainment, clothing & footwear, DIY & Gardening and online.
In developing these reports, Conlumino has so far undertaken over 50 individual consumer surveys with over 120,000 consumers surveyed.
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