As retailers embrace this year’s Black Friday and Cyber Monday, KPMG UK reveals a darker side to the retail event: annual profit margins of UK retailers have been squeezed since the event hit UK shores around 2013.
KPMG analysed the UK’s top-10 retailers (by revenue), looking at their annual reports, as well as their annual sales revenue and profit margin data. The aggregate of these data points highlighted a notable stagnation of cumulative sales revenue and an overall trend of declining profit margins since 2013.
UK’s top-10 retailers’ average annual performance: cumulative sales (excluding taxes, RSP) and actual profit margin:
Commenting on the findings Paul Martin, UK head of retail at KPMG, said:
“Amidst all the hype of Black Friday – as consumers scrabble for bargains and retailers frantically parade their discounted wares – it is easy to overlook the undercurrent created by the retail event. Retailers, dazzled by top-line sales growth, could easily underestimate the impact prolonged discounting is having on their bottom line.
“We’ve already established that Black Friday doesn’t increase sales for retailers over the Christmas trading period, it simply brings retail spending forward. What’s more, it forces retailers to sell their goods at discounted prices earlier and for longer. Meanwhile, shoppers have become accustomed to reduced price tags and anticipate sales, with retailers all too happy to accommodate their demands for fear of being overlooked. Clearly this is not sustainable.
“Our latest analysis, which looked at the UK’s top-10 retailers, reinforces a trend we’ve suspected for some time now: retail sales revenue has stagnated and profit margins have been squeezed in recent years. Black Friday and similar discount-based retail events have certainly played a role in this state of affairs, but mounting cost pressures more broadly – as well as the overarching economic situation – will also have had a significant impact.
“As retailers scream about their Black Friday success, it is worth factoring in the growing cost of fulfilment, the ever-increasing trend of returns, and of course the knock-on impact of having sales this early on in the golden quarter. Winning retailers will be those who have strategically planned their discounts far in advance, and those that can manage the surge of sales activity with the upmost efficiency.”
Looking at Black Friday from a consumer finance perspective, Simon Walker, Partner and head of creditworthiness at KPMG UK, added:
“Black Friday is all about temptation, with retailers using an alchemy of promotions and headline grabbing discounts to lure customers into making a purchase, with that all-important sense of urgency. However, with one in ten households reporting that unsecured debt payments are a heavy burden – up from one in 16 a decade ago – buyer’s remorse may be more prevalent this year, as credit card bills drop through the letter box soon after making purchases.
“Though levels of consumer credit have been rising steadily in recent years, there have been signs that growth in debt is slowing and that unsecured credit availability is falling. This might mean that Black Friday success is muted somewhat this year, with consumers more reluctant to borrow and lenders more restrained on lending. Nevertheless, Black Friday will still mark a good month for credit cards.”
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Notes to editors:
• In order to establish aggregate annual sales revenue performance (GBP) and actual profit margin (%), KPMG UK analysed annual data (sourced from annual reports, Fame and Euromonitor) relating to the UK’s top-10 retailers (by revenue).
• A British Household Panel survey, reported by the Bank of England in their November 2017 Inflation Report, found that one in ten households are reporting that unsecured debt payments are a heavy burden – up from one in 16 a decade ago.
• Please note that a graph has been integrated into the release. If you’re unable to view this, please see the table below.
UK’s top-10 retailers’ average performance: cumulative sales (excluding taxes, RSP) and actual profit margin:
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff. The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 152 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.