Retail: fine margins

Retail: fine margins

Cutting costs

Firms have also looked to make savings on their wage bills, with a sixth (17%) having permanently reduced their headcount and a similar number (16%) moving to change employment contracts and/or staff working hours. While 14% have negotiated revised terms for the repayment of debts, just over a fifth (21%) have taken on more debt during the period. Though this will have been strategically important in many cases, it may pose future financial hurdles to overcome if the cost of serving debt rises as interest rates are reviewed to tame inflation. Most analysts agree that the Bank of England will raise interest rates again to 4.5% in the spring of 2023 before a series of cuts through 2024 brings the rate back to 3.5%. Some retailers are also choosing to defer their VAT and tax obligations (14%) and, in some cases, not paying pension contributions (12%). These choices could also have knock-on effects. The Pensions Regulator has the power to impose a fine if the right pension contributions aren’t paid on time, for example. 60% 60% of retailers say energy costs have had the biggest impact on profits.

So, how are retailers protecting their margins and improving their cash position? The most popular action, cited by more than a third (36%) of respondents, has been to put up prices for customers. Some businesses will have been passing through the cost increases they’ve faced themselves. But others may have also taken the opportunity to boost their margins even more. However, price increases won’t have been an option for all – or may have run out of traction – so retailers have also taken a range of steps, including interrogating supply chains, streamlining operations and enacting organisational change. In the last six months, a quarter (26%) have changed their commercial energy supplier, while the same proportion have also changed product suppliers, and just over a fifth (22%) have extended terms with their existing ones. Elsewhere, brands have looked to their property portfolios for savings. Just over a fifth (21%) have re-negotiated rental agreements while a sixth (16%) have closed physical stores and one in ten (9%) have closed offices.

Thinking about the past six months, what have been your biggest margin pressures, if any?

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Energy costs Wholesale costs Labour costs Shipping costs Weaker demand Warehousing costs Product discounting Foreign exchange

*Results based on responses from 250 senior decision makers from retail businesses, who each selected all steps that applied to their business.

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