Retail: fine margins
Looking ahead
A helping hand
What do retailers anticipate in the months ahead? Many of the issues that caused problems for the sector in 2022 are still in play as central banks work to get inflation under control and the war in Ukraine continues to impact global energy supplies. Accordingly, when we asked retailers to consider what they thought would be the biggest margin pressures in the next six months, half (52%) flagged the impact of energy costs. The government has already announced that it will scale back support for businesses from April this year, when the current energy price cap is replaced by a new year- long scheme offering a discount on wholesale prices. It represents a significant withdrawal of support for businesses. While the current six-month scheme was funded to the tune of £18.4 billion, its 12-month long replacement has been capped at £5.5 billon. But when we asked respondents how confident they were of continuing to trade through the next year with the reduced level of government energy support, three quarters (76%) said they were confident that they could. Still, that leaves more than a fifth (22%) of firms who worry that energy prices will be an existential threat to their business.
It’s not a surprise then that when asked what they would most like the government to do to help strengthen their trading position, retailers most commonly cited greater support with energy bills (33%). Also on their wish list was reducing VAT (21%), cutting red tape when hiring overseas workers (17%), greater rates relief (15%) and streamline import processes (11%). That tallies with the biggest margin pressures identified by retailers for the next six months, which are strikingly similar to those seen during 2022. They are led by energy costs (52%), followed by wholesale costs (30%), shipping costs (30%), labour costs (29%), warehousing costs (27%), weaker customer demand (26%), increase in property rental costs (24%), foreign exchange costs (16%) and product discounting (15%). In addition to these, over seven in ten brands (72%) are expecting to see an increase in creditor pressure in the next year – with just over a fifth (21%) expecting this to be extreme.
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