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Have UK retail conditions got easier or more difficult in the last 12 months?
The question is raised by a discrepancy in figures for the number of UK retailers going into administration. Figures from Deloitte show that the number this year has fallen 43% on the previous year. In contrast, analysis of the SnapShop database shows a substantial increase in retailer administrations.
An obvious explanation of the discrepancy is that SnapShop covers just 2,300 of the largest UK retailers while the Deloitte data covers retailers regardless of size.
The evidence is surely that retail conditions have got more difficult. For years operational costs have been rising faster than sales. In response, sophisticated and powerful retailers have focused on building their gross profit margin. Globalisation and supply chain management have successfully reduced costs to the retailers. Tesco for example claims that their food price increases have been less than 2% even while ONS figures show average food price increases of around 8%. The supermarket explanation of the difference is that the ONS measure excludes items on special offer. Hmm
Now, however, there are new considerations. In the wake of the credit crunch, the value of sterling against the euro has fallen 14%. Global inflation is a pressing issue and labour costs are rising in the key supplier economies. The gap between the rise of commodity and retail prices is, according to the ONS, now wider than for 20 years. For example, annual wheat prices have risen 57% while retail prices for bread and cereals have increased 8.5%.
These changes favour the large retailers with sophisticated financial management systems for forward buying. For some years they have been squeezing out independent retailers. The evidence from SnapShop is that the impact has now reached the middle and smaller sized multiple retailers. The outlook for the retail offer is for a reduced diversity unless offset by the arrival of large overseas based retailers.
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