Retail: fine margins

Retail: fine margins

The state of play

Protecting headroom

Given the extraordinary pressures facing retailers, how are firms’ margins and cash positions holding up, and what steps have they taken to improve their position so far? Our data indicates that firms are taking bold and robust action to protect their margins. This is vital at a time when two thirds (66%) of retailers tell us that their operating costs have increased over the past six months. It’s no great surprise to learn that the biggest margin pressures from a cost perspective during the last six months have been energy (60%), wholesale costs (40%), labour (35%), shipping costs (35%), warehousing costs (22%) and foreign exchange (22%). They have also seen margins eroded by consumer demand (26%). Fewer than one in five (18%) cited product discounting as a principal cause of margin pressure, indicating that most have managed to find ways to reduce their input costs to avoid passing price increases on to customers. As a result, nearly half (45%) of the retailers we spoke to have managed to grow margins over the past six months, whilst only a fifth (22%) have seen margins fall.

But what do these margin positions mean in practice? If they’ve grown – is this enough to support brands’ future ambitions, or will it leave them just getting by? Positively, just one in ten (11%) say their margins are currently unsustainable and pose a substantial risk to their survival. A further half (47%) say their margins are currently sustainable, and will continue to enable them to grow. However, two in five (42%) say that, though their margins are currently sustainable, they don’t leave any room to invest for further growth. This highlights the risk that many firms will potentially be unable to protect or improve their market position, weather future market downturns or make the investments they need to drive down costs.

Have your margins increased or decreased, on average, over the past six months?

33% Unchanged

22% Decreased

45% Increased

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