Recession set to bring on retail transformation

The current retail downturn is not simply a temporary side-effect of the recession but the mid-point of a lengthy reform of the retail market, according to retail analyst Verdict Research, part of the Datamonitor Group. Verdict predicts just 8.1% growth in the UK over the five years to 2013, a considerable drop from the 14.1% increase in the same period to 2008. “The good news is that survivors will find themselves in a far less competitive environment, with major opportunities for market share gains and winning new customers,” says Verdict.

Rocketing unemployment is pinpointed as the main driver of the decline. “Both actual unemployment and the looming threat of it act as the ultimate dampeners to consumer spending, so the worst is truly yet to come,” says Malcolm Pinkerton, senior retail analyst at Verdict Research and author of Verdict Research’s Retail Futures 2013 report.

“At present it seems we are still facing a considerable wait before the bank’s balance sheets are sufficiently stable for them to resume a high degree of lending again,” he continues. “Even when the UK economy does lurch back into life, the prospect of higher taxes to repair the battered public finances will inhibit growth severely.” Verdict is predicting a return to positive GDP growth in 2011 but says non-food growth in 2011 in the UK will be just 1.1%.

Co-author of the report, Matthew Piner says the recession will provide a catalyst for a long-term transformation. “By the end of the downturn, shopper psychology will be irreversibly changed from that of the heady days seen in the late 90s and early part of this decade,” he says. “Shoppers from the lower socio-economic groups in particular will have formed a more price conscious outlook and an intolerance of taking on debt to fund retail expenditure.”

To deal with this retailers will need to evolve and change their strategies. “Retailers will have to learn to balance the new consumer desire for quality, timeless products with the need to drive shorter replacement cycles for areas where consumers are instinctively cutting back,” says Piner.

Verdict points out that merchandising will also need to become more efficient both in a logistical sense and in terms of driving sales. Piner adds: “Retailers will have to become more adept at spotting consumer trends early and reacting to them as well as flexing product mixes towards more successful ranges. They will need to learn to diversify sales into complimentary areas wherever possible in order to squeeze maximum spend from consumers once they have attracted them into stores.”