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‘Apocalypse now for Britain’s retailers’! Truth or Myth?

Thursday 29 March 2018 Data Insight & AnalyticsRetail ConsultancyShopping Behaviour

Matthew Soffair's picture
By Matthew Soffair

‘Apocalypse’, ’Big-name stores are teetering on the brink’ and ‘Who’d be a retailer now?’ were all phrases included within a recent Guardian article on the state of UK retailing. With house prices stagnant, prime rents rising and a number of retailers experiencing financial difficulties, the start of 2018 has seen store closures and, in the case of Toys ‘R’ Us and Maplin, administration. There can be no doubt that these are undoubtedly challenging times for UK retail and leisure operators.  

One of the common explanations for these trends is declining consumer confidence. In partnership with the British Population Survey (BPS), we at CACI have looked beyond the headlines to understand how UK consumer confidence has changed in recent years, and what this can tell us about the likely trends for the rest of 2018. 

 

December 2017 Consumer Confidence

CACI and BPS analyse consumer confidence by tracking consumers’ view on how their personal finances will have changed in 3 months’ time. In contrast to negative reports in the press, overall consumer confidence at the end of 2017 was actually +11%, not far off the highest levels we have recorded since we started tracking consumer confidence with BPS in 2011. This means that substantially more consumers think their financial situation will improve over the next 3 months, and leaves confidence 2 percentage points higher than it was at the end of 2016. 

What does this mean for retail and leisure operators?

So, if consumer confidence is so strong, why have so many retailers experienced issues in the first quarter of 2018? Whilst overall consumer confidence has remained strong, analysis of our Shopper Dimensions data, which utilises over 600,000 surveys at over 200 UK retail centres, has found that average retail spend per trip declined by 3% in 2017 compared to 2015. This is in line with the Office of National Statistics’ (ONS) December 2017 report on retail spending, which suggested that ‘the longer-term picture is one of slowing growth, with increased prices squeezing people’s spending.’

Why?

Despite overall consumer confidence remaining positive, a look beyond the top-line figures shows some significant contrasts in confidence between wealthier consumer groups, who contribute the bulk of retail and leisure spend, and less affluent households, who continue to be boosted by strong employment rates.

The decline in confidence of affluent consumers is a contributing factor to some of the struggles experienced by retail and leisure operators in 2017, who are also having to deal with the challenges posed by rising business rates in prime locations and continued competition from online channels. The squeeze on disposable incomes experienced by typically high spending, affluent consumers (categorised as Affluent Achievers in our Acorn geodemographic segmentation) has resulted in their purchasing behaviour becoming more polarised and targeted, with operators needing to provide either excellent value for money or alternatively a more distinct and stronger offer / experience.

 

How much is consumer confidence to blame for recent closures?

Whilst declining consumer confidence has increased pressure on operators, can we really attribute site closures to this factor? We’ve taken a closer look at two high profile operators who are closing outlets, M&S and Jamie’s Italian, to understand the key factors at play at a local level.

A closer look at the 14 proposed M&S closures using CACI’s measure of retail centre strength, Centre Health, shows that 64% of these stores sit within average or below average retail centres. The stores due to close that sit within stronger retail centres, such as Bournemouth and Falmouth, have nearby M&S stores in superior shopping destinations, which should be well placed to regain some of these lost sales. The reality is that these closures are a response to longer-term challenges in their non-food performance and a need to optimise their property portfolio, rather than a response to short-term challenges in consumer confidence.

Jamie’s Italian, on the other hand, represents a stark example of how the lower confidence of affluent consumers, combined with highly competitive and expensive locations, has contributed to closures. The majority of the 12 restaurants earmarked for closure sit within relatively strong dining out destinations, such as St Albans and Threadneedle Street in the City of London. However, the three-pronged challenge of highly competitive locations (these centres contain on average over 12 competing Italian restaurants within the same centre (LDC)), high rents and the more targeted eating out spend of affluent consumers has made these locations unviable. 

 

What can we expect in 2018?

The strong Christmas results of both premium retailers (such as Selfridges, Ted Baker and Joules), and value-focused retailers in the form of Primark, B&M and Poundland highlights how adaptable retailers (both in terms of products and store formats) with clearly defined offers continue to succeed. For retailers operating in a more mass market, the improved performance of the likes of Pets at Home and Waterstones provide great examples of how developing additional in-store propositions can maintain and grow their engagement with customers.

Whilst we are unlikely to have heard the last of retailers struggling in 2018, there may be more positive news on the horizon. There are plenty of examples of operators with clear and adaptable propositions that continue to perform well and grow. Moreover, the ONS’ February release found that retail sales increased month on month and our early 2018 data on consumer confidence from BPS makes more positive reading, with affluent consumers reporting an increase of 2 percentage points in confidence in January 2018. 

 

 

Consumer Confidence Review

Consumer Confidence: Is it really ‘Apocalypse now for Britain’s retailers?'