A record H1 decline in 2018 – What next for retail businesses?

While we have yet to see whether or not the UK will leave the EU without a deal, there’s no doubt that this represents a worrying prospect for our nation’s economy. According to credit rating’s agency Moody’s, this could be particularly damaging for the retail sector, while it also has the potential to plunge the UK into a recession.

These fears have been stoked by a record decline for retail businesses during H1 of 2018, with the UK’s high streets seemingly bearing the brunt of economic volatility and reduced consumer spending.

The question that remains, of course, is whether this is a temporary decline triggered by uncertainty or a sign of things to come in the future. We’ll address this below and determine the portents for brands operating in the UK.

The story behind the statistics – How is the retail sector faring?

The first six months of 2018 have certainly been harrowing for retail brands in the UK, with the number of outlets closing having increased by a staggering 17% during this period.

In total, the number of shops, restaurants and bars lying idle has soared by more than 4,400 during the first six months of the year, with high streets nationwide beginning to resemble ghost towns.

This has hardly been helped by the fact that the number of outlets opened also declined by 2.1% during H1, leaving more than 4,402 gaps on the high street than there were at the end of 2017.

Incredibly, this number is more than double the amount of gaps previously recorded after the first six months of the year, at least since research into this phenomenon began five years ago.

As if these figures were not worrying enough by themselves, the increased rate of closures in the UK has also triggered a spate of job losses. Thousands of Brits have been left without work as a result of the high street’s decline, with many of these having previously worked for major retailers including House of Fraser, Evans Cycles, Maplin and Poundworld.

All of these brands have fallen into administration this year, proving that even market-leading retail chains are vulnerable in the current economic climate. A host of similar brands have also been forced to seek out legal agreements with their landlords and close several prominent stores, including New Look, Mothercare and even Homebase.

Our analysis – is this a temporary dip or a sign of things to come?

At first glance, these recent figures may hint at little more than a temporary, if pronounced decline.

After all, it can be argued that the recent slowdown in spending and increased business rates are a direct consequence of the prevailing economic climate, which is being exacerbated by the uncertainty surrounding Brexit.

High street brands are also wrestling with the risk posed by fraudulent activity, which was recently highlighted in a fascinating study by RSM. This is also an ongoing battle within the retail space, with both on and offline channels increasingly at the mercy of sophisticated cyber thieves.

However, the rising prominence of online shopping represents a longer-term challenge for some retailers, as does a recent shift in consumer behaviour in the UK. More specifically, customers are increasingly likely to spend their disposable income on holidays and experiences rather than shopping, with offline retailers likely to bear the brunt of this change.

These long-term issues have been compounded by the looming prospect of a no-deal Brexit, which is having a cumulative impact on retailer margins across a host of sectors.

If this comes to pass and the UK does indeed exit the European Union with an amicable agreement, then we may be poised for a sustained slump in the nation’s retail marketplace.