Retailers are facing a tough 2015 with sales expected to grow by 2%, a similar level to this year, according to a retail thinktank.
Continued low earnings growth, price deflation and uncertainty about the outcome of the election in May, as well as the potential resurgence of problems in the eurozone, are all likely to weigh down on consumer spending despite rising employment and improving consumer confidence, according to a group of retail industry experts brought together by KPMG and Ipsos.
“Concerns around the outcome of the general election, coupled with a budget planned for later than expected on 18 March, could cause consumers to pause their spending while they wait for greater clarity,” said James Knightley, senior UK economist at ING, who sits on the panel.
His concerns were echoed by Nick Bubb, an independent retail analyst, who suggested that VAT was also likely to rise this year whichever party ended up in power in May, as the government seeks new funds to help cut the country’s deficit.
Food retailers will be hardest hit, according to the panel, with sales likely to fall by at least 1% as fierce competition from discounters, commodity deflation and austerity-minded shoppers take their toll. Grocers’ profits are also likely to suffer from shoppers’ continuing love affair with online purchasing, which is more costly to run than stores.
The problems with home delivery encountered by Marks and Spencer and Debenhams on Black Friday and Waitrose and Sainsbury’s around 23 December show that UK retailers must invest more to ensure they can cope with spikes in demand, the panel said.
