With it being over a year now since the Brexit vote and with 20 months to go before exit becomes a reality, what’s in store for the retail industry over that period and how should retailers respond.
With household savings already stretched consumer spend grew by 0.4% in Q1 2017, about half the rate of 2016. With CPI inflation set to go above 3% by the end of the year and wage growth failing to keep pace, consumer spend is going to be squeezed. If HSBC’s recent forecast of parity for the pound V euro by the end of the year proves correct, the consumer could be looking at further significant cost increases, at home and abroad, heading into 2018.
With pressure on consumer spending impacting the top line, retailers will also have to contend with rising costs. So, a tough environment is about to get tougher.
Imported product costs
The weakness of the pound against the euro and US dollar will impact on the price of imported product.
In London retailers will see an average 9% increase in business rates. In this environment what should retailers do? In Greene King’s preliminary results announcement issued last month their Chairman noted:
For retailers operating on a smaller scale, finding cost efficiencies, as well as new product lines that fly off the shelves, will play an important part in a successful strategy.
- Maintaining category margins by reviewing supplier product lists, or by introducing differential pricing can help offset the price increases caused by sterling's weakness
- Keeping labour costs in check by cutting staff hours or reducing staff numbers can mitigate the impact of the national living wage
- Passing on cost increases to customers
- A tight control over cash and credit card sales will reduce avoidable costs
- Tightening procedures to cut out waste and reduce fraud
- Reviewing stock levels
- Reviewing other variable overhead costs to see if reductions can be made
- Cloud platforms and applications help to increase revenue and reduce cost