Retailers will experience slower growth in 2016 as consumers divert spending to nights out and improving their homes rather than shopping, according to a new forecast.
Retail sales growth will slip back to around 1.7% in 2016 from about 1.8% this year, according to the KPMG/Ipsos retail thinktank, despite the fact that most consumers have more money in their pockets. But people are now looking to spend their money on restaurants, pubs and cinemas as well as on trips to the high street.
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“Consumers are looking beyond retail for goods and services to spend their money on,” said panel member Maureen Hinton, an analyst at consultancy Conlumino . “This is making it much harder for an oversubscribed retail sector. Leisure, culture, entertainment have shown much stronger growth than retail over the past five years and this trend is being exacerbated by an ageing population.”
Pubs, restaurants, hotels and other leisure activities have enjoyed strong growth in 2015 – up 11.4% according to credit and debit card operator Barclaycard, while supermarkets have found the going tough. Food and drink shopping saw the weakest growth of all the categories Barclaycard measures – up just 1.1%.
With overall market growth low, traditional supermarkets will continue to face pressure from the rapidly expanding discounters Aldi and Lidl which continue to open stores. Amazon is also ramping up its food delivery services in the UK – with plans to add more products to its Pantry range and rumours that it will launch fresh food in 2016.
“Volumes are not rising enough to support all this expansion and there has to be some consolidation in the sector to take out the excess supply,” Hinton said.
Meanwhile, the KPMG/Ipsos thinktank believes homeowners will put spare cash towards paying off the mortgage and paying tradesmen to update their properties rather than spending more on clothing or food in 2016.
With such a tough environment, the thinktank said it would be difficult for retailers to put up prices to offset cost increases resulting from the implementation of the “national living wage”, which comes into force in April, as well as rises in business rates – a combination Tesco boss Dave Lewis has described as a “lethal cocktail.”
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