New research conducted by NatWest and Retail Economics shows Brexit uncertainty as the biggest concern for consumers heading into 2019.
The report “Outlook for UK Retail 2019 – Sustaining growth in a changing market" shows a deterioration in confidence on personal finances, house prices and job security, all critical in supporting a retail sector undergoing a period of unprecedented change.
The report also highlights how technology-driven changes in consumer shopping behaviour have fundamentally changed the way consumers and retailers use property, leading to over capacity of physical space in the UK market. Forecasts predict non-food online spending to reach 50% in the next 10 years, leading to overcapacity of retail space of around 20%.
48% of consumers suggest ‘Brexit’ is their biggest concern heading into 2019, followed by ‘a weaker economy’ (13%) and ‘lack of savings’ (12%).
41% of consumers expect their personal finances to weaken in 2019.
35% of respondents say that they will spend less on experiences such as eating out, going to the cinema and bowling in 2019. 17% said they would spend more.
Almost a third (29%) of the least affluent households showed signs of concern around repayment of credit card debt heading into 2019. However, this proportion fell to 14% for the wealthiest households.
37% think their assets (e.g. house prices) are likely to become weaker in 2019.
Further administrations and CVAs should be expected as retailers struggle to pivot business models quickly enough to meet the realities of today’s digitally-led retail environment.
RPA Perspective Traditional retail business models will be pushed to their limits as newly emerging models gather pace, boosted by rapid consumer adoption. The impact that technology has had on music and entertainment retailers through streaming services such as Netflix, Spotify, Amazon Music and others will proliferate to other sectors.
- The sharing economy (rental and secondary markets)
- Mass personalisation at scale (curated subscriptions)
- Retail subscriptions (auto-replenishment or smart reordering)
- Services economy (“Do it for me”)
New models of consumption such as rental markets, curated subscription models, the service economy, auto-replenishment and smart re-ordering have the potential to fundamentally alter the retail norms of today.
Richard Lim, Chief Executive, Retail Economics, said: “I fail to recall a more challenging time to accurately predict an industry’s future. Unprecedented uncertainty persists around the Brexit deal, the political landscape and the magnitude of its potential disruption to the UK economy.
“The rapid evolution of consumer preferences will leave many retailers struggling to adapt business models swiftly enough to meet heightened expectations throughout 2019. The priority will be to focus on strategic transformation to pivot business models so they don’t get left behind in a digitally driven age. The ongoing channel shift to online presents a particular challenge to bricks and mortar business models as the performance of physical assets become increasingly polarised. In many cases, retailers are burdened with too many stores, unsuitable space and inflexible lease structures. This will continue to inhibit the sizeable capex outlay required to repurpose some locations and invest in the IT infrastructure and logistics capabilities needed to keep pace with pure online competitors.
“I expect the industry to remain locked in a period of disruption throughout 2019. Structural challenges facing retailers will continue to accelerate and those that embrace, adapt and innovate to the emerging environment will be the ones to benefit.”
David Scott, Head of Retail and Leisure, NatWest, said: “It is perhaps unsurprising that Brexit has been declared the top customer concern. Uncertainty always has and always will damage the sector. 2018 was a year of unprecedented change in the retail industry, and this change propels uncertainty – there is nothing more uncertain than what Brexit will look like. Consumer confidence remains shaky at present; though we think the outlook for consumer spending will improve as inflation falls towards our target of 2%. In fact, by the final quarter of this year – we expect real wage growth to be up by 1.3%. This presents the retail industry with an opportunity to attract and in many cases, re-attract custom.
“To achieve this, retailers will need to evolve more quickly than ever before. The traditional metrics – sales per square foot etc. – will need to be redrawn for the new digital age, and the new ways in which customers interact with brands, including brand buzz and product dwell time. The fact is that in 2018, those brands that had joined up strategies in alignment with the customer journey enjoyed success, so we predict more will follow this model in the year ahead. While we recognise the struggles the sector is facing, we still see opportunity and we are very much active in helping businesses both large and small navigate this tricky time.”
The consumer survey was conducted in December 2018 with a sample of 2,000 consumers.
