Retail Prospects for 2017 | KPMG | BE

Retail Prospects for 2017

Retail Prospects for 2017

Views from the KPMG/Ipsos Retail Think Tank members.

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Retailers need to make their businesses even leaner (if possible) and focus on optimisaton rather than expansion.​

For many traditional bricks and mortar retailers Black Friday 2016 could be the beginning of the end, given retailing during Christmas has now become a two tier event - where shoppers bring forward their purchases to benefit from the plethora of discounts on offer for Black Friday, and then ‘panic buy’ the week before Christmas. The former benefits principally retailers with a considerable online presence, whilst the latter benefits those retailers that have a strong physical presence on the high street.

Black Friday has hit margins at a time when they should be at their highest level - many high street retailers in fact make up to 50% of their profit from Q4 - Black Friday essentially wipes a lot of this profit out. Whilst Christmas Eve, Christmas Day and Boxing Day should be strong for bricks and mortar retailers - given Christmas Eve falls on a Saturday this year – I fear that this will not be enough to make up for the impact of Black Friday on margin; particularly given that Black Friday this year was – as with 2015 – largely an online phenomenon.

Whether Brexit actually happens next year remains to be seen, but I fear that a number of bricks and mortar retailers will fail next year given a perfect storm of falling post-Christmas consumer demand, currency hedging running out (a large volume of retailers have hedges that run out in Q1 2017) and a significant increase in business rates. A reduction in corporation tax would be most welcome, but would be too little, too late in the context of reduced consumer demand and rapidly increasing costs.

One thing that retailers are unlikely to need to worry about is retail rents however – as it is almost impossible to see how landlords can justify upwards only rent reviews in the context of the potentially substantial amount of retail business failures we could witness post-Christmas. This applies to major retail centres too given the increase in business rates retailers will have to bear in such centres, despite transitional relief. The physical retail market is becoming increasingly polarised given the advent of online – with fewer stores needed than ever before – and landlords with large dominant retail assets have fared relatively well in recent years. However, rental growth – at least for the foreseeable future – is hard to imagine. Even on London’s Bond Street – with some of the highest retail rents in the world – there is more stock available than ever before.

2017 for many retailers, their suppliers and even their landlords is looking relatively bleak ​– many will need to make their businesses even leaner (if that is possible) and focus on store optimisation rather than expansion. The sooner retailers start this process, the better.

 

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