WELLCARE Blog for Business

Retail is big business. In 2016, the retail industry reportedly made more than $25 trillion in sales worldwide. The story is different, though, for many retailers doing business in the UK.

When did it start?

Retail sales in the UK have been in a steady state of decline since 2015. According to a 2016 report by PricewaterhouseCoopers (PWC) and The Local Data Company, a total of 2,656 stores all over the UK closed during the first half of the year. This meant a staggering rate of 15 stores closing every single day—an increase from 2014’s rate of 14 shops closing each day.

This trend made an impact on many established retail brands in 2016. In October of that year, American-owned Gap decided to close all its Banana Republic outlets in the UK. The fashion brand was simply not selling, as sales fell for the sixth consecutive quarter.

American Apparel also announced in November 2016 that 12 of their 13 UK stores would be closed, and that the remaining store would also be closed shortly after. This comes on the heels of the brand filing for bankruptcy in October of 2015.

It wasn’t just American companies experiencing this, though. Many well-known British brands were affected as well. Local retailer Marks and Spencer (M&S) closed down 30 full-line stores (fashion, food, home products, etc.) in 2016 in an effort to boost their profit margins. M&S converted another 45 stores into food-only stores.

Austin Reed, another well-known UK retailer, closed all 120 of its stores in June of 2016 as the company fell into administration (bankruptcy). As a result, around 1,000 employees lost their jobs.

Department store chain British Home Stores (BHS) also collapsed in 2016. This caused the closure of 163 stores throughout the UK and the loss of more than 11,000 jobs. In addition, the Centre for Retail Research stated that 22 retailers failed in 2016.

The state of UK retail in 2017

2016 was a tough year for retailers, and things don’t seem to be going better in 2017. Official reports indicate that the amount of goods purchased by consumers across the UK decreased by 0.8 per cent this year. The sectors that were most affected were supermarkets, department stores, petrol stations, and food sellers.

The tech industry is also in decline, with sales of computers, video games, smartphones and the like experiencing a downturn. Experts think that the delayed release of the iPhone 8 may have contributed to the low smartphone sales.

A survey by the Confederation of British Industry (CBI) that retail sales in the UK are plummeting at its fastest rate since the 2009 global recession. In the survey, 50 per cent of retailers said their were down, with only 15 per cent stating that their sales increased.

Debenhams, one of the UK’s largest retailers, reported a 44 per cent drop in profits in 2017. The department store chain has already closed two stores, and they have at least ten more lined up for closure.

The cause of decline

The decrease in the UK’s retail sales isn’t caused by just one economic element. Instead, it is due to a multitude of factors that include:

1.Increased online sales

Year-on-year retail sales in the country grew only 1.2 per cent. The vast majority of this growth can be attributed to a major increase in online sales. Ian Geddes, head of retail at consulting multinational Deloitte, states that online sales increased by 14 per cent over the past year, and that online sales now make up 17 per cent of all retail spending. He also adds that consumers spend about  £1.2 billion per week on online purchases alone.

Despite the downtrend in offline retail purchases, Geddes posits that the improvement in online sales will continue. He thinks it is because consumers like the convenience of shopping at their favorite brands using their smartphones, tablets or laptops from the convenience of their homes. This is evidenced by the fact that, although retailers like Marks and Spencer have closed physical stores, they continue to improve on their online operations.

2.Rising inflation coupled with slow income growth

The national household income in the UK fell by 0.5 per cent this year, even as income rates in London increased by 2.4 per cent. However, this is still below the country’s current inflation rate of 3 per cent.

Increased inflation and stagnant wages are directly linked to the consumers’ spending power. As the value of their hard-earned income decreases, UK consumers are holding back on their purchases. This resulted in softened demand for certain goods, with supermarkets, food and drink shops, with department stores suffering the most.

It is apparent that consumers are feeling the effects of inflation, as they now have to spend more money to get the same amount of products they did in previous years.

3.Change in consumers’ buying behaviour

Before the internet and the online shopping boom, consumers would visit multiple stores when they wanted to buy a product. They would canvas for the highest quality and the best deal possible by going from shop to shop before they made their decision. This was how consumers did their research back then.

Those days, however, are long gone. The internet has definitely changed the public’s buying behaviour. Today, when consumers are interested in a certain product, their first point of contact is the internet. They look for product information on social media platforms such as Facebook and Instagram, read product reviews on Amazon, visit the product manufacturer’s website, and even watch video reviews of products on YouTube.

Nowadays, while the sales person is still plays a very important role, less and less consumers are retrieving information directly from a sales person when they want to learn more about a certain product. Many customers already do all their research online. They don’t even have to physically go to the store to buy the product since they can do that online as well.

How to get over the retail slump

Yes, the retail industry in the UK is in a state of deterioration right now and things don’t look to be improving any time soon. However, that doesn’t mean you have to be included in the downward trend. Whether you’re a marketer or a manufacturer, there are things you can do to overcome the retail decline:

1.Find your niche.

Selling lower-priced commodities and trying to beat the prices of your competitors is a difficult and tedious task, especially now that online shopping is such a big deal. What you can do instead is find your niche market, preferably a smaller market where you have less competition. Once you find it, focus the required time, energy and resources on it. You just might find your business and products dominating that niche.

2.Create high-quality products.

Plenty of buyers don’t mind paying a significant amount as long as they get their money’s worth. This is why it’s important to attract consumers with the quality of your product, and not just the price. People will still go for your more expensive product if it had a significantly higher quality than the cheaper products offered by your competitors.

3.Be innovative.

When it comes to business, you need to spend money in order to earn money. You need to devote resources into research and development so that both your company and your products don’t stagnate. Consumers are always on the lookout for innovation or a solution to solve their pain point. Therefore, make your products different from anything in the market by investing in technology and making advancements in your manufacturing and marketing operations. The best merchandize is a product that solves your customer's problems in a completely new and different way.

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Reference sources:

https://www.theguardian.com/business/2016/oct/25/britains-high-streets-under-strain-as-15-shops-close-every-day
https://en.wikipedia.org/wiki/British_Home_Stores
https://www.ft.com/content/722b01aa-a817-11e6-8898-79a99e2a4de6?mhq5j=e6
https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/
https://www.theguardian.com/business/2017/oct/19/uk-retail-sales-slump-september-inflation-wages