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.

Prolonged discounting and crumbling demand have contributed significantly to the prediction that we are set for the worst run of retail health performance for five years.
— KPMG / Ipsos Retail Think Tank July 2017

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.

By 2020 the cost increases from the National Living Wage alone will add a further 10% to retailers 2016 pay bills…... And it’s not just the direct costs to your wage bill that will affect your business. Indirect costs from your supply chain will see additional cost inflation.

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:

Alongside the rest of the industry, we are experiencing significant cost pressures but Greene King’s scale and the consequent cost efficiencies…, should enable us to mitigate much of the cost increases

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

When times are tough strong financial control can make the difference between a business surviving and prospering or not. Accurate financial information, made quickly available, will allow retailers to exercise the necessary control.