A challenging retail environment

The last few months have been tough for UK retailers and with pressure on the high street unlikely to let up any time soon, factors such as Brexit, rising costs and online competition have left British merchants with little to celebrate. Although the macroeconomic picture seems to have improved more recently, a study by the Centre for Retail Research suggests that 2018 is set to be the worst year for UK store closures since the financial crisis. Shop owners will need to be proactive in steering their business what looks to be a challenging period. The pressured consumer Over the last year, consumers have tightened their purse strings as household incomes fail to keep up with rising inflation and levels of consumer debt increase. Though we may finally be seeing a hint of an upswing in real wages, shoppers aren’t likely to be rushing out anytime soon to buy non-essential items, and pet stores are likely to feel the ongoing impact of this as seen from the latest Pets at Home results. Consumers will naturally go through a period of reflection before starting to flash the plastic again and shoppers in Britain will remain cautious until the economy is more settled. Retailers would do well to remember this in the longer term and should bear it in mind when planning for the remainder of the year. Macro challenges Since the Brexit vote in 2016, the pound has dropped by 10-15 percent with the consequences continuing to be felt over the last 12 months and as sterling volatility looks like it’s here to stay, retail margins will only be more unpredictable in the future. Though the agreement of a transitional Brexit deal to keep the UK a member of the single market and customs union earlier this year is unequivocal positive news for the sector, retailers are still likely to struggle somewhat as they enter into a period of increased uncertainty the nearer we get to March 2019. What may seem like a small niggle initially can turn into a larger problem further down the line, with this being very much the case with currency risk for businesses navigating international markets. Planning and preparation will be key to ensuring retailers fare positively during this period and this is where locking in exchange rates and effective hedging will become a retailer’s best friend. We find that many retailers have managing their currency risk right down at the bottom of their to-do list but with such high swings, can you really afford to take the risk of not protecting your business? Looking to the future Despite the industry supporting employment figures and bringing in greater tax revenues than almost any other sector in the UK, the government does not offer much in the way of support to retailers. Given the current environment, these businesses need as much help as they can get in order to adapt to the constantly changing macroeconomic and political conditions attacking the sector. Despite not having a crystal ball to predict the outcome of Brexit or whether the squeezed consumer will become less so in months to come, there are actions that retailers themselves can take to continue to thrive both domestically and further afield. The power and responsibility lies with UK retailers themselves to handle risk effectively and protect their business both locally and globally to ensure a successful future in this rapidly evolving retail environment. By Jeremy Thomson-Cook, chief economist at international currency exchange specialists, WorldFirst This feature was first published in the November 2018 issue of Pet Gazette