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IMRG: Factors Affecting Retail

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Following on from IMRG's predictions on Black Friday and Christmas sales, the UK's Online Retail Association summarises discusses what's causing the retail downturn and the chances of a turnaround.  

What is actually causing the current downturn in retail?

Not a short list. In no particular order, all of the following issues are potentially exerting some negative influence over retail:

  • Shopper confidence – there are a number of reasons why shoppers are proving unresponsive to retailer campaigns, but the primary one is likely to be related to the number of prominent retailers who have gone into administration, closed stores, or reported falling sales. People are reluctant to buy higher-cost items when they have concerns over whether the business will still be around to fulfil their order.

  • Stuck in discounting – linked to that point, there has been a general dependence on discounting since summer 2018 to drive sales growth. As so much of it has been going on for so long, plus with sales being subdued, some retailers will probably be forced to go harder and deeper than they would like, which, in turn, puts pressure on their competitors to follow suit.

  • Spend on other areas – there have been suggestions that potential customer spend is being diverted into other areas, such as entertainment and leisure. This has not been comprehensively proven one way or the other, but remains a possibility.

  • Lack of new tech – when new devices gain traction for online retail conversion, they tend to create new contexts for engaging with retail sites, which drives sales growth. Smartphones and tablets both did this. At the moment there is no new device, and while voice assistants have potential, they have not reached a level of retail-use adoption yet.  

  • Environment – a tough one to quantify perhaps, but the intense media focus on the environmental footprint of retail must be influencing shopper behaviour at least to some extent.

  • Brexit – there are a number of potential business impacts caused by the ongoing uncertainty, but tying up investment that might otherwise have been used to improve customer experience would be the important one here.

What are the chances things could suddenly turn around?

Sales growth for the Black Friday period last year (which, by our definition, ran for eight days from Monday 19 November through Monday 26 November in 2018) was underwhelming, with online retail sales up +6.8% against a forecast of +12.5%. The actual day of Black Friday occurred early in the month, before many people will have been paid; this year Black Friday is on 29 November, so there is a possibility the timings may work better for shoppers.

As demand has been low, many retailers will also be carrying a lot of excess stock, meaning that there may be notably more deals available; a greater variety of offers could stimulate more purchases.

However, a decent Black Friday trading period, while representing a very big retail event, is unlikely to herald a fundamental turnaround in retail’s fortunes: it is too dependent on heavy discounting to restore customer confidence and demand to healthy levels again.

Given how weak demand has been throughout 2019, it seems highly unlikely that Black Friday and Christmas are going to turn retail’s fortunes around.

Source : IMRG

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14 November 2019

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