Warnings of a profit crisis for retailers as margins shrink in the past decade
Retail profit margins will plunge to 5.1 per cent in 2022, the lowest level in a decade.
Excluding the initial impact of the Covid 19 pandemic and related shop closures, profit margins will drop to the lowest level in a decade, down from 8.3 per cent in 2021.
Some 57 per cent of UK consumers said the cost of living crisis would have the largest influence on their expectations of retailers and brands in the coming year.
This was the highest proportion out of other European countries, according to global professional services film Alvarez & Marsal (A&M), in partnership with Retail Economics.
It comes as Poundland’s owner Pepco said consumers in the UK were facing particular pressure and would be forced to cut back on spending to higher levels than their European peers.
Unsurprisingly, price is the most important driver of purchasing behaviour, with 37 per cent of UK consumers saying they were primarily driven by price.
However, almost an equal amount, 36 per cent, said quality was the most important driver for them with 83 per cent of consumers not willing to sacrifice quality for a cheaper price tag.
“The UK is already the most digitally advanced and competitive market in Europe, and so there are no easy fixes for retailers and brands,” Erin Brookes, A&M’s managing director and head of retail in Europe, said.
She added: “They are going to have to work even harder to drive efficiencies and appeal to an ever changing and more demanding consumer. To be successful, they need to align themselves with the new realities consumers are facing, whether that’s expanding value ranges or offering products and services which help to address issues like energy usage.”
A&M has forecast a “profit crisis” within the retail industry, given the cost of living crunch facing UK shoppers while businesses face their own staggering headwinds.
Over the last decade, UK retail sales have leaped by 35.7 per cent but profits have fallen by 10.9 per cent.
“As costs rise and competition intensifies, consumer-facing companies are having to transform in order to stave off a profit crisis,” Brookes added.