Recession costs the UK retail sector £23billion
New research into the future of retail and released just as clothes retailer Republic called in the administrators has revealed the massive cost of the recession to retailers – and shows that retail is set to lose out still further as consumers find more ways outside of retail to spend their discretionary income.
Discretionary spend will remain under pressure over the next decade as consumers elect to spend less of their free income on retail according to the research commissioned by ecommerce partner Webloyalty,
The findings, compiled by research specialists Conlumino, explore what consumer spending on retail might have looked like between 2007 and 2012 if the financial crisis and subsequent downturn had not hit.
When compared with actual expenditure over this period the results show that the economic crisis has cost the retail sector £23bn in terms of lost growth. The electricals market, which lost major player Comet at the end of 2012, was hardest hit with a gap in spending of £6.4bn. Furniture and flooring were close behind, with £5.9bn less spent than would have been the case had the recession not occurred.
Looking forward, the research also reveals that retail is set to lose out still further over the next decade as the proportion of discretionary income spent on retail is set to decline. Although overall household income will start to rise as the downturn eases, the proportion of income that is truly discretionary will not recover to pre-recession levels. Moreover, retail’s share of discretionary income, which today stands at 32%, will decline to 27% by 2022.
The pressure on some sectors is more pronounced. In the wake of HMV and Blockbusters’ slide into administration, remaining music and film retailers will continue to struggle. Spend in this area is expected to fall a further 16.8% in the next ten years as people move to digital media and subscription services. The research is also bad news for Waterstones, the only remaining major book seller on the High Street. Spending on books is expected to fall by 10.3% in the same period as the shift to e-readers continues.
There is good news for some retailers however; spending on health and beauty, and clothing and footwear are both expected to rise by nearly 20%, benefiting from being more needs-based and because the products are a way for consumers to treat themselves at relatively low expense.
Commenting on the findings, Guy Chiswick, Managing Director of Webloyalty UK, said: “These figures show that times will continue to be tough for retailers and consumers alike, but there are things businesses can do to thrive. Securing new customers can be difficult, so it is vital that retailers hold on to the customers they already have by engendering loyalty. Customer data needs to be used intelligently to meet the needs of individuals and to drive loyalty and satisfaction.”
Neil Saunders of Conlumino added: “Consumers are thinking more carefully about what and why they’re purchasing. This means retailers have to work much harder at interpreting what customers want. Unfortunately, this is more complicated than ever because of the fragmented and multichannel nature of shopping today.”