A Great Overview of the UK Retail Sector’s Problems

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There is an excellent analytical piece in the Observer this morning which looks at the challenges facing the UK retailing market…

The article takes a measured and evidence-based approach, in contrast to many of the hysterical and doom-laden pieces we get each day in sources such as the Daily Mail.

The essence of the article is that the UK retail market is entering a periodic of fundamental change in response to the end of the consumer-fuelled economic boom of the last decade.  Amongst the data I picked out was:

The UK retailing market is likely to suffer from significant overcapacity:
- 88 million sq ft of new retail space opened in the UK during the last two decades
- 12 new shopping centres opened in the UK during 2008 - the equivalent of 3km of new high street
Research group Experian predicts that 30,000 stores - 10% of the UK’sshops - will lie empty by Christmas 2009 (currently 7% are empty)

The end of the consumer spending boom leaves many retailers badly exposed to a sharp downturn in sales of “indulgence products”
- Last ten years, retail sales have grown by 4% per year on average
- Of the £288bn spent at the shops in 2008, more than half - £163.6bn - is classed by analysts as “indulgence” spending and is therefore vulnerable in a downturn.

An interesting paragraph in the article sums up the position quite nicely:

“Recession promises to draw a brutal dividing line down the high street, with the weak on one side and the strong on the other. Well-capitalised retailers with strong brands are expected to fare better during the tough times ahead as weaker competitors fall by the wayside”

In any market, the strong survive and the weak eventually fail.  The UK retail industry is about to provide us with a highly public case study of the process…

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