THE UK RETAIL INDUSTRY HAS HAD A TORRID FEW YEARS WITH MANY HIGH STREET NAMES DISAPPEARING AS THE ECONOMY HAS SUFFERED BUT CONFIDENCE IS HIGH AMONGST RETAILERS AS WE CONTINUE TO EXIT FROM THE DEPRESSION EXAMINE AND ANALYSE THE EVIDENCE FOR AND AGAINST THIS STATEMENT USING KEY AUTHORITATIVE SOURCES. RT405 - Assessment A Amelia Harte Student No. 15829928 Retail Marketing 02/02/16 Word Count: 1548
The UK Retail Industry has had a torrid few years with many high street names disappearing as the economy has suffered but confidence is high amongst retailers as we continue to exit from the depression This essay will address the afore mentioned statement, which will be argued for and against by an examination and analysis of evidence, by looking at a number of key issues, such as economic indicators, government intervention and consumer pressures. The Retail Industry accounts for 8% of the United Kingdom s GDP (Office for National Statistics, 2015b), and is one of the leading sources of employment in the nation. With 4.4 million people being employed in 2014 by the retail industry, it is the largest number of any sector in the UK economy, (Rhodes, 2015). Due to the 2008 economic crash and adverse economy that resulted, the United Kingdom s Retail Industry has suffered, which has resulted in the disappearance of many high street names. However, retailers remain confident as the depression is left behind and they continue to grow and develop into the future. The last three months of 2008 saw the UK gross domestic product fall by 1.5%, with a 0.6% fall in the previous quarter alone. A recession can be defined as two consecutive quarters of negative economic growth, therefore proving that 2008 was the start of a recession for the United Kingdom. The retail sector is fronting a number of burdens as a result of the economic downfall and continues to be challenged by an adverse economic climate, as seen through an examination of the current economic pressures and market status. Although the tail-end of 2015 saw a slight rise in the Consumer Price Index, with a 0.2% increase in the rates in December (Office for National Statistics, 2015a), the overall inflation levels for 2015 were 0%, which is an all-time low, and far lower than the target rate of 2%, (Taborda, 2016). Figure 1 (see appendix) displays the dismal consumer price inflation levels and the steep depreciation of the value since the beginning of 2014. Generally low levels of inflation results in reduced prices which in turn means higher consumer spending levels, therefore boosting economic growth. However, when the levels are this low the outcome is often reduced spending, as consumers are waiting for a further price drop, which leads to slower retail growth (Chu, 2015). In Figure 2 (see appendix) it is evident that GDP is on a slow downward trend, and although there is growth, it is slower than usual, which is due to the inflation levels. Conversely, retail sales have seen a small rise in the quantity bought over the past year, with growth in December of 2015 having increased by 2.6% compared to December of 2014 (Office for National Statistics, 2015b). There is an underlying pattern of growth of the quantity bought 1
in retail sales, which can be seen in Table 2 in the appendices. However, statistics show that the store prices have fallen by 3.2% in the last month of 2015 compared to 2014 and there was a small reduction in the level of spending in the retail sector (Office for National Statistics, 2015b). Consumer confidence has been on an upward trend for the previous four years and is now at a similar index of that in late 2005/2006. This increase, which can be seen in Figure 3 (see appendix), is the first time in many years that the index has been in the positive range (Centre for Retail Research, 2016). Increased consumer confidence means that more consumers are optimistic about the state of the economy, which is expressed through their spending habits. A higher level of consumer confidence often results in higher levels of spending (McWhinney, 2004). The possibility for technological opportunities in the retail sector is substantial, with technological advancements potentially altering all aspects of the retail experience. A large proportion of these advancements revolve around smart phones and their capability to ensure the retail experience is more convenient (Alexandrova-Kabadjova, 2015). Figures are showing that digital technology is having a major influence on about one third of UK retailers, which equals about 100 billion. Large proportions of consumers are also moving in a more technologically advanced direction, with 41% of consumers stating that engagement with a digital device made their experience more convenient and 33% of consumers expressing a desire to make payments in digital form (Jeffery and Perkins, 2015). Mobile payments, or mpayments, which facilitate transactions using a smart-phone, and electronic payments or epayments, are a fast-growing aspect of the retail industry that retailers are being forced to adapt to (Holloman, 2015). It was estimated that the use of these new means of payments would grow exponentially in 2015, with mobile transactions projected to increase by a staggering 60% and a growth of 16% in the use of e-payments (World Payments Report, 2016). Brands like Apple have introduced Apple Pay, which allows consumers to link their payment cards to their smartphone and enables payments to be made using an iphone or Apple Watch and also simplifies in-app payments (Apple, 2016). With various other smaller financial and technological companies introducing numerous different forms of e-payments and m- payments, it is clear that mobile technology is fast becoming the future of the industry (Holloman, 2015). The Government has a large role in the internationalization of the United Kingdom retail sector. In 2012 United Kingdom Trade and Investment announced a detailed strategy aimed at offering 2
support for the retail sector s international growth. The plan focuses on a number of key issues including the aid of omni-channel and luxury brands to help them access the international market, assisting companies with market access problems and facilitating market development and helping attract international investors into the UK retail sector. Resulting actions of the plan include distributing 500 million through the assistance of over 1000 business and their international growth, attracting foreign retail expertise to support retail in the UK and its international offer and working with business leaders and influencers to internationally promote the UK retail sector for trade and investment (Gov.uk, 2014). With the retail sector accounting for such large proportions of employment, taxes and value added to the economy, the plans to boost the international opportunities for the industry will aid to long-term advantages for the Government. The UK retail sector has always been acutely competitive, and still is to this day. The retail industry must be able to respond quickly to the changing desires and demands of their consumer (Akehurst and Alexander, 1995). Originally a traditional model of high streets with local stores was used, but with the changes and developments of shopping centers and retail parks in the 1960s and 1970s, as well as the development of e-commerce (Department for Business Innovation & Skills, 2013), consumers have been able to access the retail industry in many new and different ways, having an effect on shopping patterns. These newly developed means of access not only allow for numerous ways for consumers to buy, but also allow for businesses to expand the way in which they manufacture and sell their products on the market (Resnick et al, 2014) The retail sector can be closely linked to many other sectors of the economy, including the manufacturing, construction and distribution industries, as well as larger sectors such as organization, transport and storage (Varley, 2001). This is due to the connection between production and consumer consumption. As these different sectors become more interconnected it allows for the retail industry to thrive, as it not only benefits retailing companies by providing the services they need, and for potentially lower prices, but also by creating bonds between different companies to eliminate competition (Corstjens et al, 1995). High street performance is certainly not the only factor to reflect on in terms of the whole of the retail sectors performance, however, measuring high street vacancy rates, the footfall of a town center and the sales rates in specific retail stores can often indicate the status and health 3
of the retail industry (Clifford, 2001). As of April 2015, the UK town center vacancy rate was 10.2%. This is down 0.2% from 10.4% in January of 2015, indicating an increase in store development, which in turn reflects on the improvement of retail industry health (Rhodes, 2015). London, the East, Scotland and Northern Ireland were all regions that reported a growth in footfall from 2014 to 2015, indicating a rise in the number of shoppers. In 2000, 49.4% of retail shopping took place on the high street, whereas in 2011, towards the end of the economic recession, it was down to 42%. These statistics indicate the decrease in the numbers of shoppers on high streets during this recession, which could be due to the desire to spend less money. They are also an indication of growth in the number of shoppers after the recession was over, which allows for the assumption to be made that the retailing sector is making progress as it exits the economic turmoil left behind by the economic downturn (Department for Business Innovation & Skills, 2011). In conclusion, although the United Kingdom has been struggling to make its way out of the turmoil left behind by the economic downfall, current studies have been able to show that recently the retail sector has been able to emerge from its problems and prevail, despite various economic pressures, with consumer confidence high. With plans for both technological advancements and internationalization, the possibility for progress is high in the United Kingdom s retail sector. 4
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Appendices Figure 1 Figure 1: Chu, B. (2015). UK inflation at record low of 0.3%: Why is it important and what does it mean for you?. Independent. [online] Available at: http://www.independent.co.uk/news/business/comment/uk-inflation-at-record-low-of-03- why-is-it-important-and-what-does-it-mean-for-you-10051874.html, http://www.globalrates.com/economic-indicators/inflation/inflation-information.aspx Figure 2 Figure 2: Tradingeconomics.com, (2016). United Kingdom GDP Growth Rate 1955-2016 Data Chart Calendar. [online] Available at: http://www.tradingeconomics.com/unitedkingdom/gdp-growth 8
Figure 3 Figure 3: Centre for Retail Research, (2016). Retail Forecast for 2016-2017. [online] Retailresearch.org. Available at: http://www.retailresearch.org/retailforecast.php Table 1 Table 1: Centre for Retail Research, (2016). Retail Forecast for 2016-2017. [online] Retailresearch.org. Available at: http://www.retailresearch.org/retailforecast.php 9