Management consultants AT Kearney say UK retailers should be bracing themselves for a tough 2012 and the latest ONS retail sales figures for December 2011 disguise a drop in earnings, resulting from deep discounting
Anne-Isabelle Choueiri, manager of the retail practice at AT Kearney, said: “Looking at the ONS retail sales figures for December 2011, one may think things aren’t all that bad for UK retailers: a 6.2% increase in value and a 2.6% increase in volume (all compared to December 2010) could mean growing wealth and consumption…only that in today’s UK context, they don’t.
“If we were to look back to December 2008, we’d see retailers sold last month 4.8% more goods than four years earlier and earned 12.2% more in current prices, but once inflation is accounted for, the increase in earnings would drop to just 1%. One per cent increase in earnings against almost 5% in volumes means retailers now get less per unit sold – an observation hardly surprising given the amount of unprecedented promotional activity both on the high street and online, which has become a permanent, rather than a seasonal, feature.
“As the popular adage goes, there isn’t such a thing as a free lunch – nor, may we add, a free promotion. Constant promotions eat into retailers’ margins, decrease brand appeal and bore consumers.
“Unfortunately, even if all retailers suddenly kicked off the promotion habit, not everyone would survive 2012. With an economic outlook as grim as this year’s, with rising unemployment, squeezed incomes and a looming Eurozone crisis, there simply won’t be enough money in the UK economy to maintain every retailer in the country afloat. Peacocks was the first big casualty of the year – but it won’t be the last one. Retailers should be bracing themselves for a tough year. “