UK Retailers ‘Face Mounting Pressure on Margins’

Operating in the UK’s retail sector is not likely to get any easier over the course of 2015, with pressure on margins expected to continue to squeeze small and big businesses alike.

Indeed, according to the assessment of experts from the accounting giant Ernst & Young (E&Y), competition for custom among British retailers is set to be increasingly fierce as consumers shop around for what value they can find.

Whereas in previous years the chief concern for retailers has been the squeeze on consumer spending, this year the primary worry for retail businesses is whether or not they can maintain their margins as price wars become increasingly commonplace.

“There has been a significant turnaround in the sector and retailers are no longer as worried about the squeeze on disposable incomes as they take comfort in the predicted 2.9 per cent increase in consumer spending this year,” explained Julie Carlyle, head of retail at E&Y.

“However, pricing pressure, particularly in light of the vast increase in retail discounts, means there is no time for businesses to become complacent.”

As well as restraining costs, UK retailers will face the challenge of managing their infrastructure as consumers come to expect heavy discounts to be offered at particular times of year. Perhaps most notable among these “exaggerated peaks in demand” is Black Friday, which last year emerged as a sales-focussed phenomena of real significance in the UK.

On that subject, E&Y said: “Black Friday 2014 has changed the shape of Christmas trading and is now an established event that is here to stay.

“However, retailers must be better prepared for it this year by engaging suppliers earlier, to help protect the bottom line, and ensuring more merchandise planning is in place.”

E&Y quizzed around 150 contributors to a recent panel discussion on the issues facing the UK’s retail sector in the coming months with 45 per cent citing maintaining or improving margins as their number one challenge.

A majority of those polled suggested that everyday pressures on pricing levels would be the leading cause of a squeeze on their operating margins.