The latest ONS retail sales data underline the weakness of industry demand. The forward momentum of growth by value is 1.9% yoy, confirming the slowdown that actually began early in H2 2014. The data also confirm the continued price deflation which dominates every sector. This trend too has been very firmly established, in this case for well over 12 months.
It is clear that retailers are having to give away margin to turn stock into cash. Discounters are structured to work like this – mainstream players are not. The implications for brand equity and customer relationships cannot be overstated.
Anyone thinking this is too gloomy should consider two headwinds. First, the return of interest rates to a level which might be considered historically normal. The second is the National Living Wage. Both will increase retailers’ costs (already rising far faster than sales) still further.
Economists seem convinced we have a really strong consumer economy. Or at least, some do. And so does the Bank of England. I’m not sure that consumers see it this way and they surely are the key players here. What is 100% clear is if they really are much better off, they are clearly not spending it in retail. The competitive scew is tighteneng.
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