This year the competitive ante is being raised materially. We have had over capacity for years although it is an issue which has not been effectively addressed, and is growing. We have had weak demand for some time too. Cheap petrol is helping mitigate pressure on household budgets, as have PPI payouts and some dipping into savings too. What is really increasing the pressure now is price deflation. Last year gave us a glimpse of what the new retail reality will look like and this year will ratchet up the competitive pressures several notches more.
The significant slowdown in retail growth in H2 2014 heralded the end of the retail recovery. Household balance sheets are simply not in good enough shape and the steam evaporated as the year unwound. The headline growth in total retail spend for 2014 was 4.2% but the second half slowdown to 3.3% is a directional indicator. I’m forecasting growth for 2015 of 2.9% – that’s around £10bn and not nearly enough to go round.
This is not all bad news.and much depends which camp you are in. The gap between the winners and also rans will widen. Pressures from the 3 key areas I discussed earlier will not be felt democratically – we saw a spectrum of reactions to growing negative price inflation last year as stronger brands with closer and deeper relationships with their customers were able to set their own pace. Those that had to follow will find the going tougher but the rewards for the strong will be reflected is conspicuously superior performance.
** More detailed forecasts and analysis of the 2015 retail landscape can be found in the premium subscription content of richardtalksretail.com