Downturn to transform UK retail sector

19 May 2009

LONDON: The UK retail sector will be transformed by the economic downturn, with the country's major supermarket chains set to be the main beneficiaries of changing trends, a new report from OC&C, the strategic consultancy, reveals.

It has been argued that the rise of discount retailers has been one of the most distinctive features of the current downturn, with a variety of implications for premium brands and the market as a whole.

Based on an analysis of the British retail landscape over the last 20 years, the company found that the average amount of household debt at the start of the current downturn was 20% higher than during the previous slump in the 1990s.

The report also argues that savings rates need to increase by 10% before spending bounces back to its previous level, and that the combination of high debt and a depressed housing market means this is unlikely to occur in the short term.

Indeed, Will Hayllar, a partner at OC&C, argued that the weakness of the housing market "is far more dramatic than it has been in previous downturns, and that has changed the shape of this recession."

As 13% of sales in the DIY sector are linked to consumers moving house, and 37% of kitchen-related purchases are also tied to the property market, the company suggests the prospects for these sectors looks uneven at best.

By contrast, figures from TNS show that while supermarkets' premium own-label sales have slowed, their budget lines have proved considerably more successful.

For the 12 weeks to 22 February, the research firm found that Tesco, the UK's biggest retailer, saw sales of its value range increase by 40%, with Sainsbury's "Basics" also seeing sales rise 67% in this period.

Sales of Asda's discount brand similarly improved by over a quarter, and Morrissons has increased the size of its budget range by almost 100% following the onset of the downturn.

OC&C predicts that one key trend likely to outlast the slump is that British consumers will continue to shop around for bargains.

Hallyer argues that "repertoire shopping is one of the underlying consumer changes we would expect to see beyond the severe downturn years."

The British Retail Consortium has reported that retail sales in the UK actually rose by 4.6% on a like-for-like basis in April, but they have also fallen in nine of the last 11 months.

Data sourced from The Times; additional content by WARC staff