Part Two: KPMG/IPSOS: COVID-19 Impact On Retail Health

This story is part two of KPMG-IPSOS: COVID-19 Obliterates Hopes Of Improved Retail Health For Foreseeable Future

Second Quarter of 2020 – Prediction:

Looking ahead to the prospects in the second quarter of 2020, the RTT are in collective agreement that much depends upon both the length and form of the country’s social distancing measures, which in itself sparked heated debate. That said, there was little doubt that the situation faced by retailers today would be worse than anything that has been experienced in the history of the retail think tank’s index, including the 2008/09 financial crisis.

As the RTT’s economist, Ruth Gregory of Capital Economics, outlined: “We think that the lockdown implemented to contain the coronavirus will trigger a peak-to-trough fall in GDP of around 25% in the first half of this year, which would dwarf the 6% drop during the 2008/09 financial crisis. Retail sales could fall by as much as 30% in parallel.

“Meanwhile, although not all of those applying for Universal Credit will have been made unemployed, the 1.75 million new applications lodged in the four weeks to 9th April will probably raise the unemployment rate from 4.0% in February to 5.3% in April. And if some firms find that they cannot balance the books once the government support ends, then worse may be yet to come.”

Being the principal driver of health, the RTT focused their attention largely on demand, or rather the lack thereof, in the upcoming quarter. To a lesser degree yet still significant, margin and cost were also predicted to weigh retail health down. Cost pressures impacting retail margins were said to be working their way through food supply chains, whilst non-food items would need to be largely written off. Meanwhile, fixed costs relieved by government intervention – while wholly supported and welcomed – weren’t likely to fully compensate for rising variable costs elsewhere, especially by those still trading.

Commenting on the prospects for health in the second quarter of 2020, Tim Denison, co-chair of the RTT and director of retail intelligence at Ipsos Retail Performance, said:

“As was clear through heated debate, the longevity and nature of the current lockdown measures is largely unknown, but there remains little doubt that retail will be severely impacted – at levels eclipsing what had previously been experienced during the 2008/09 financial crisis. Unlike previous historic downturns, this is not only about the consumer’s response to what is occurring around them, but rather the mechanics of daily life have fundamentally changed, forcing the consumer’s hand and blocking demand. Even when restrictions are lifted – whenever and however that may be – it’s unlikely we’ll see a return to ‘normal’ by any means.

“There are a myriad of dynamics at play and not all retailers are feeling the pain equally – there is a clear divide between ‘essential’ and ‘non-essential’, between online and physical channels, as well as between ‘premium’ versus ‘value’. The cons will likely outweigh the pros though. Indeed, even those noting surges in sales aren’t necessarily finding it easy to translate these additional sales into profit. We all know that home delivery for example, isn’t always cost efficient.

“Government schemes and relief have of course been welcomed, easing some fixed cost pressures like business rates and staff costs. However, other costs have arisen, including those relating to: additional people power, airfreight, supply chain and storage, or product manufacturing for example. It’s easy to assume that those still trading have it easier, but that’s not the case. Likewise, those not trading still have bills to pay, with costs inherently sticky.

“The future is rather murky, and consumer confidence is likely to be volatile for the foreseeable future, especially as the longer-term impact of the pandemic becomes clearer. Retail isn’t likely to be a high priority for most and it remains to be seen whether retail health will recover sharply or slowly, if indeed it recovers fully at all.”  

Source : KPMG/Ipsos Retail Think Tank

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