Retail Forum April 2009
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Retail's rocky ride following the slump in consumer confidence as the banking crisis unwound. What is the future for high streets? How can retailers and town centre managers rise to the challenge?
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Retail Forum April 2009
- 1. Understanding the external environment Jane Bevis Director of Business Environment British Retail Consortium
- 2. BRC Retail Members We represent: • Over 80% of the retail industry. • 30,000 smaller and medium sized retailers. • Over 70 major retail members, with over 190 facias • A broad church of large to small; out of town to high street; food and non-food; stores and online/direct.
- 4. BRC Continues to Expand – latest new members
- 5. Current Retail Climate in the UK • Systematic global economic slowdown • Credit crunch has spread to all sectors of the real economy • Credit contraction causing disruption in retailers’ supply chains • Retail sales fall in 2008 and 2009 • Consumer confidence at near record lows • Sterling’s depreciation affecting retailers’ costs and inflation • Government-driven costs rising
- 7. BRC-KPMG Retail Sales Monitor: 11.5 Total sales growth 3- month weighted average 10.0 Food: 6.3% 8.5 Non-Food: -2.1% Year-on-year % change 7.0 All: 1.2% 5.5 4.0 2007 Total 2.5 1.0 2009 Total 2008 Total -0.5 Mar 0.6% Feb 0.1% -2.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009
- 8. BRC-KPMG Retail Sales Monitor: Like-for-Like sales growth 8.0 3- month weighted average 6.0 Food: 4.7% Non-Food: -4.3% Year-on-Year % Change 4.0 All: -0.7% 2.0 2007 LFL 0.0 -2.0 2008 LFL 2009 LFL Mar -1.2% -4.0 Feb -1.8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009
- 9. BRC-KPMG Retail Sales Monitor and 5.0% Consumer confidence 0 4.0% -5 consumer confidence index 3.0% -10 % change in sales 2.0% -15 1.0% -20 0.0% -25 -1.0% -30 -2.0% -35 -3.0% -40 -4.0% -45 Jan-07 Mar-07 May-07 Jul-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Nov-08 Jan-09 Sep-07 Sep-08 KPMG-BRC RSM GfK NOP - Consumer confidence
- 10. < Pessimism --- GfK Index --- Optimism> -50 -40 -30 -20 -10 0 10 20 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Source: Nationwide, GfK NOP Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 GfK: overall index Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 GfK - major purchases Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Consumer Confidence Aug-08 Sep-08 Nationwide - overall index Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 0 20 40 60 80 100 120 Pessimism> --- Nationwide Index --- < Optimism
- 11. House price (% change yoy) -25% -20% -15% -10% -5% 0% 5% 10% 15% Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Halifax house prices index Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Mortgage approvals Feb-09 Mar-09 0% 20% 40% 60% -80% -60% -40% -20% House price and mortgage approvals -100% Mortgage approval (% change yoy)
- 12. 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Unemployment Rate Jun-08 Aug-08 Oct-08 Dec-08
- 13. 1.0 1.2 1.4 1.6 1.8 2.0 2.2 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Euro into Sterling Mar-08 May-08 Jul-08 Sep-08 US $ into Sterling Nov-08 Jan-09 Falling value of the pound Mar-09
- 14. Credit Conditions Has your business experienced a If yes, has this impaired the ability to contraction in credit facilities offered by operate the business on a day-to-day your bank? basis? 11% 67% 82% No 100% yes 89% 33% 18% Large SME Large SME 2
- 15. Credit Conditions If you have experienced a contraction in credit facilities, what has the impact been? 30% Reduced staff levels 100% Changed supplier 32% payment terms 50% 14% Changed stock lines 25% 41% Reduced stock levels 75% 0% 20% 40% 60% 80% 100% 3 Large SME
- 16. Trade Credit Insurance Have you experienced disruptions in your supply If you have experienced problems in your supply chain as a direct result of trade credit insurance chain, can you estimate what proportion has being reduced or withdrawn from your been affected? suppliers? 4% All suppliers 1% 75% - 100% 50% 59% 9% 50% - 75% 19% 25% - 50% 18% 43% 10% - 25% 50% 55% 41% 23% less than 10% 27% Large SME 0% 10% 20% 30% 40% 50% 60% 4 yes no Large SME
- 17. Retailers are facing increasing regulation and costs • Increased protectionism threats from the EU • Environmental/Green legislation - Climate change and waste • Consumer protection/health legislation • Property taxes
- 18. -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Overall SPI Jan-08 Feb-08 Mar-08 Apr-08 Food May-08 Jun-08 Jul-08 Aug-08 Sep-08 Non-food Oct-08 Nov-08 Dec-08 BRC-Nielsen Shop Price Index Jan-09 Feb-09 Mar-09
- 19. Challenges faced by the High Street • Long-term growth rates predicted to fall • Unfavourable exchange rates • Chinese cost increases • Consumers become increasingly price sensitive • Increased popularity of shopping online • Spending forecasts suggest wide variations between sectors • Out of town shopping continues at the expense of High Street
- 20. Retail Stocks
Notas del editor
- Credit crunch started in the finance sector in summer 2007. Ceasing of credit markets and inter-bank lending has lead to collapse of housing market and lending in the private sector Contraction in the credit markets has lead to banks cutting back on credit lines used by companies and making credit more expensive. Trade credit insurance has also been a significant issue with the reduction and withdrawal of insurance causing supply chain problems Difficult trading conditions for retailers. 9 of the last 10 months have seen negative L-F-L sales Consumer confidence near record lows CPI 3.2% in March Interest rates have now fallen to record lows from 5.75% in July 2007 to 0.5% now. This has had an effect on the value of sterling which has now depreciated about 25% against major currencies since the summer of 2007 SPI food inflation at 9.0% in March, up from 7.5% in February
- Over the last twelve months the financial crisis has caused some of the largest retail stocks to plummet. The retail sector has fallen by around 25% in the last year The erosion of capital in the company makes riding out tough trading conditions all the more difficult. Companies may have to look at other ways of raising capital if required.
- Total sales show all spending in shops, including those that have opened in the last year and is the measure favoured by economists. As you can see overall total sales rose only 0.6% compared with a year ago, after January ’ s discount-driven blip. 3-month weighted average – Total sales (Jan-Mar): Food: 6.3% Non-food: -2.1% All categories: 1.2% Non-food non-store sales (internet, mail-order and phone sales) in March were 10.8% higher than a year ago. This continued the slowdown from the 30.0% gain in December.
- The BRC-KPMG Retail Sales Monitor (RSM) revealed a contraction in spending during the three months on a like-for-like basis of -0.7 per cent. In March 2009 retail sales were 1.2 per cent down compared to the same month last year. Food sales showed slightly stronger growth, partly inflation-driven. The decline in non-food sales was smaller than in February, as warmer weather benefited clothing, footwear and outdoor leisure. Homewares and furniture sales remained down on a year ago. 3-month weighted average – LFL sales (Jan-Mar): Food: 4.7% Non-food: -4.3% All categories: -0.7% Sales have fallen 11 out of the last 13 months This reflects the challenges faced by shrinking household budgets, the effects of rising energy costs, travel mortgage payments weakening house prices pessimistic economic outlook
- The BRC-KPMG Retail Sales Monitor 80% of the retail sector Running for 15 years Retail sales have now been negative in 9 of the last 10 months on a LFL basis The food sector has faired better than other sectors of the economy. In March Food: 6.3% Non-food: -2.1% All categories: 1.2% Non-food non-store sales (internet, mail-order and phone sales) in March were 10.8% higher than a year ago. This continued the slowdown from the 30.0% gain in December. Internet sales only account for about 4% of total retail sales
- Consumer confidence remains fragile. While confidence grew slightly in February, the general trend for the last 12 months has been a downward one. Poor consumer confidence reflects the credit crunch, weakening house prices and ongoing uncertainty about financial markets. According to the GfK consumer confidence measure, consumers ’ views of both their personal situation and the general economy over the next 12 months saw an uplift suggesting that an increasing number of consumers believe that things will be better this time next year
- Whilst market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. In March – house prices were down 17.6% y-o-y, up from the low of 18.9% in December. It would appear that the pace of deceleration is beginning to level out. House price to earnings ratio still at a historic high Mortgage approvals are down 45% y-o-y. Still very depressed but an improvement from the 70% y-o-y contraction in July 2008. The market is finding a bottom Activity will be slow to take off, especially for first time buyers. Deposits of around 20% are needed to secure reasonable mortgage rates A larger share of consumers ’ incomes goes towards paying off their mortgages. Especially so first time buyers. It ’ s estimated that approximately 65% of fixed-rate mortgages are coming to an end.
- UPDATE 22/04/09 The number of unemployed people, the unemployment rate and the claimant count have all increased. The total number of jobless is now at 2.03 million. This is the highest level seen since 1997. The claimant count jumped 138,400 in February, the biggest monthly gain since records began in 1971 and the 13 th consecutive monthly increase.
- Since mid 2007, effective sterling exchange rate has depreciated by 25% Some investors are likely to have reassessed their view of the long-term prospects for the United Kingdom and with it the sustainable level of sterling. For example, some investors may have lowered their view of sterling ’ s sustainable level because they believe that UK growth will be particularly adversely affected by a persistent reduction in global demand for financial services. investors believe that the risks to the UK outlook, and therefore to the return on UK assets, have increased, relative to those in other economies. That should help to support export growth over time. That depreciation is more than twice as large as in 1992, and following that fall, UK export volumes grew more rapidly than world imports for the subsequent four years.
- - When asked if businesses had experienced a contraction of credit facilities offered by their bank almost 1 in 5 larger retailers said yes one third of SMEs said yes 100% of large retailers said that this had impaired their ability to operate on a day-by-day basis. 89% of SMEs
- - Of these, 89% of SMEs said it impaired their ability to operate, - 30% cut staffing levels - 42% reduced stock levels - 32% reduced supplier payment terms
- Notes on slide Anti dumping – we ’ ve seen the effects of the quotas placed on clothing over two years which was an attempt to restrict imports from China, and last year ’ s anti dumping duties on shoes which added to the import price of shoes sourced from the far east. Then there is the farcical move by the EU to add import taxes on energy saving light bulbs whilst pushing for stringent energy efficiency targets by 2020. And now we ’ re facing the same issue around candles and a threat of jeans being included. The BRC is calling on European politicians to reform Europe ’ s Trade Defence Instruments making it far more difficult for any further so–called ‘ anti-dumping' duties to be imposed on imports of popular consumer goods. The EU ’ s protectionist bias will present retailers with further regulatory limits on trading – a battle the BRC will continue to fight. Taxation/ban on bags – both the London Councils, who are currently seeking the power to enforce a total ban on free and charged for bags, both plastic and paper, and the Scottish Parliament which has also looked into a plastic bag tax see this issue as a popular quick win with the electorate without thinking through the issues behind the ban such as increased shop lifting or that in the first year of a carrier bag taxation in Southern Ireland, retailers there experienced a 70% year-on-year growth in the sales of heavy-duty plastic bags from when the plastic bag tax was introduced. These sorts of plastic are in fact more harmful to the environment and show that consumers previously re-used their plastic bags as bin liners. The EU has set demanding climate change targets e.g.20-30% reduction in CO² emissions by 2020 (rel. to 1990); 20% increase in use of renewables and 20% improvement in energy efficiency in that timescale. Each major EU Member State will be required to meet or exceed these levels and we can all expect the UK government to further given the posturing we have seen from both main parties. So retailers will have to, and indeed are, taking this seriously. Our message to our members is use us to help you achieve your own company goals, be it as a place to share ideas, or to ensure that new legislation does not strangle your operations through our own dialogue with government and other stakeholders. These and other issues such as Ethical sourcing ’ carbon footprinting and waste are not going to go away and this type of regulation will only increase in the future. These three issues are merely a few of the hundreds of issues we work on every year, fighting to protect retailers from increased regulation and additional burdens and costs to their businesses. That is why it is so important to have a united trade body fighting for retailers.
- Inflation showed a big drop in December due to the cut in VAT. Since it has been creeping up. The depreciation of the pound has caused the cost of imports to rise for many retailers. Margins have been squeezed and some of the increase in costs has been passed on to the customer The rate of deflation in non-food has been slowing Food inflation has continued to increase despite the fall in oil and other commodities which caused the spike during last summer. Although c.60% of food consumed in the UK is sourced domestically, the grocery industry is a global market place and hence exchange rate fluctuations affect the price of produce and production. The farm-gate price of UK produced foodstuffs has increased markedly, as sterling has depreciated, to maintain parity in the price of similar goods sourced in other currencies in the global market place. SPI food inflation remained at 9% in March The effect of a fall in the value of sterling appears to be filtering through to consumer prices faster than expected. While the costs of imports have increased markedly during the last year for many retailers, exports have been boosted, restricting supply and pushing up the price of many domestically-produced goods.
- Price elasticity of consumers becomes increasingly sensitive. As budgets tighten consumers become more willing to seek alternatives, competition among retailers will become key to survival