The UK’s retail sector will not see recovery for another year according to senior industry managers, a study by strategy consultancy Roland Berger reveals.
Retail executives expect fundamental change to the industry landscape as a result of recession in three key areas: consolidation, structural shifts in the supply chain and the increasing prominence of value retailing.
Tim Manasseh, consumer goods and retail partner at Roland Berger, said: “The UK retail landscape has taken a big knock as a result of the recession – what will emerge from the storm will look quite different.”
Bill Upton, performance improvement and restructuring partner at Roland Berger, said: “With significant over-capacity in any market at the moment, the quickest firms to adapt their cost base to market changes will have the strongest chance of survival.”
The study, Retail and the Recession, released today, is the result of research conducted in April 2009 among 110 senior finance managers from UK retailers, wholesalers and manufacturers with a turnover over of at least £250m.
Industry leaders expect the recession to affect the industry for another year, with little or no improvement in performance during 2009/10, and more job losses.
On average, firms expect another 12 months of difficulty, with a return to growth not forecast until May 2010.
Over four fifths (82%) forecast either no pick-up (45%) or a drop (37%) in turnover in 2009/10. Likewise, 82% forecast static (46%) or falling (36%) profits.
Nearly a third (31%) anticipate further job cuts, with suppliers more optimistic about job retention than retailers.
While only 11% of suppliers are expecting to increase headcount in 2009/10, this compares to just 2% of retailers.
More than half (57%) of retail leaders expect long-term, fundamental changes in the industry in response to the recession, in the form of consolidation, structural changes in the supply chain and a shift to value retailing.
Manasseh said: “The discount model has thrived in the recession, with low-cost chains grabbing market share and major supermarkets battling to slash prices and promote value brands.”
Bill Upton commented: “The shift in demand to low cost products will affect profit margins, forcing companies to assess their cost base accordingly.”
Despite identifying these underlying shifts, the industry lacks a long-term strategic response, according to Roland Berger.
For example, while almost two-thirds of retail executives identify a trend towards consolidation, less than half (47%) are likely to implement any kind of M&A strategy.
Manasseh said: “Retailers and suppliers are taking actions to weather the storm, but do not appear to have a coherent game-plan to build sustainable competitive advantage.
“As well taking a sufficiently long-term view of the economy and the sector, industry leaders need to look at their own financial strength and competitive position.”
