You would be forgiven for thinking that something isn’t quite right when the Great British tradition of shopping fails to materialise over the Christmas period.
The cautious spending habits of consumers highlights a worrying trend for the UK’s retail sector. With business rates set to rise and the country facing the cliff edge of a no-deal Brexit, can the sector rebound in 2019?
If it can, it certainly hasn’t got off to a great start.
The British Retail Consortium have released a series of alarming figures, showing that retail sales in December plummeted to their lowest rate in a decade and total retail sales showed 0 per cent year on year growth during the month. However, where there are losers, there are also winners. While big names like Mothercare (-11.4 per cent) and Debenhams (-3.4 per cent) suffered plummeting sales, two-thirds of households took the decision to shop in either Aldi or Lidl over the Christmas period. This highlights how the economic uncertainty surrounding the country is impacting individual households spending decisions (to the benefit of discounted stores).
While some retailers have had a good Christmas, the entire sector is likely to be affected by the prospect of a no-deal Brexit. Surprisingly back in November, almost a quarter of Britain’s leading retailers had done nothing to prepare for the country crashing out of the EU. Confident perhaps that the government would secure a deal that Parliament could enshrine into law. Two months on and with a parliament no closer to agreeing the Prime Minister’s Brexit deal, the sector is now taking precautionary action. Large brands like Tesco and Marks & Spencer are stockpiling food, while Lidl has taken steps to beef up its customs operation. The fear of higher tariffs and shortages of goods is real. We will just have to see if retailers have left it too late.
Away from the no-deal planning, the government is starting to plan for life outside of the EU. In December, the Home Office published its white paper on what the UK’s future immigration system could look like and this is likely to affect the way the British retailers operate. They will have welcomed proposals to remove the cap on the Tier 2 visa, a five-year scheme which currently has a cap on the amount of people that are able to use it for entry into the UK. The scheme will now be opened to anyone outside the UK, ensuring retailers can access skilled labour and offer the security of a long-term job. On the flip-side, the government are proposing to limit the amount of lower skilled labour entering the UK with proposals to introduce a time limited route for temporary short-term workers, for a maximum of 12 months. Retailers rely on access to lower skilled labour and these restrictions could leave employers unable to fill vacancies.
In search of respite, UK retailers should look ahead to the year ahead as an opportunity to turn the tide back in their favour. Ironically, whilst the government is committed to making sure that markets work for consumers, they have overlooked the needs of some sectors, like retail, that need a boost. Faced with workforce constraints, UK retailers are set to face greater financial pressures as April’s business rate increases will see retailers fork out an extra £180 million under the revaluation system. Labour have boosted their pro-business credentials and criticised the hike, highlighting the good will on all sides to generate a retail recovery. Last year the Treasury rejected calls from retailers to reform business rates. With a weakened government and supportive opposition, key fiscal events (like the Spending Review) and the Queen’s Speech should be seen as opportunities to try and secure business rate reform.
While the UK’s retailers haven’t had the start to 2019 they may have hoped for, the year offers opportunities as well as obstacles. The Prime Minister has shown she is prepared to intervene in markets where they are not working for consumers, yet it may now be time to help support the retail sector, to ensure parts of the high street are not forced to close down. They might have their backs to the wall, but the time is now for retailers to showcase what more government can do to help create a thriving sector that works better for industry, and ultimately consumers.