More space but less demand ‘will hit retail hard’

UK retailing faces one of its toughest years ever as the sector tries to swallow a dangerous cocktail of intense competition, space saturation, consumer apathy and slowing spend.
According to Verdict Consulting the coincidence of these trends will mean that on a like-for-like basis retail spend will contract in 2008, causing a significant number of casualties.

With credit no longer easy to obtain and significant pressure on disposable income consumers will cut back on retail spending, says Verdict, which predicts growth in homewares this year of 3.2% against 3.4% in 2007.

At the same time, the amount of retail space due to open this year shows no sign of lessening. Verdict says that 9m sq ft of space will be added, but while the new space is likely to trade well it will do so at the cost of existing retail space.

“The bottom line is that there just isn’t enough growth to go around between existing physical retailers, new space and the internet,” comments Verdict’s consulting director Neil Saunders. “Something, somewhere, has got to give.”

Verdict says that while some successful players will continue to grow the outlook for others will be less positive, with a squeeze on margins likely across most sectors. The number of retail bankruptcies will probably increase, it predicts, and many retailers, over the longer term, will examine their store portfolios and try to close unprofitable branches.

“We’re not predicting disaster for the retail economy as a whole,” concludes Saunders, “but there are undoubtedly rough times ahead which will sort out the winners from the losers – and not all of those losers will survive.”

Verdict forecasts that over the next 10 years retail spending will grow by an average of 2.8% per annum, compared with 4.9% over the last 10.

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