Falling consumer demand will hurt retailers in the first quarter of the year but the market could improve thanks to lower costs, according to a new survey out today.
KPMG and Synovate on the latest Retail Health Index said heavy discounting has placed margins under pressure but food retailers are unlikely to be hit because of falling input prices.
The retail panel said: “Demand will continue to suffer as the recession bites. This fear is founded on economic factors such as falling house prices, credit tightening by banks and signs that jobs will continue to be shed; thus seriously ‘spooking’ consumers.”
Pali International analyst Nick Bubb said: “Overall we see that retailers are fighting very hard to ride out the increasing recessionary pressures, although food retailers are better placed than non-food retailers.”
Decisive action has already been taken by retailers to drive down costs, such as cutting jobs, the think tank said.
But the 2.5% VAT cut has had “little or no impact on margins”, they added, and could become a bigger problem if the government raises VAT to 20% in a year.
