Rising inflation will continue to put pressure on retail

In Industry Comment, Industry News On

Following the news that the UK’s inflation rate climbed to its joint highest in more than five years in August, the squeeze on retail has been one of the topics under the spotlight.

UK inflation measured by the Consumer Prices Index rose to 2.9% in August, up from 2.6% in July, the figures show, with the Office for National Statistics adding that the fall in the value of sterling since the EU referendum continued to be a major impetus for rising prices.

Among those to comment on the news is JML chief executive Ken Daly (pictured).

He said: “Most of the industry would be much more comfortable with an inflation rate closer to the Bank of England’s 2% target. With so much uncertainty for retailers surrounding Brexit and the stability of the pound, the worry is that we may see an increase in interest rates.

“For the retail sector in particular, which is going through drastic changes at the moment as consumer behaviours change and digital marketplaces grow, a low-rate environment is crucial.

“The sector is definitely feeling the effects of weaker sterling, as import costs for many retailers have risen drastically in the last few months. The price increases from this currency movement are likely just beginning to trickle through to consumers now.”

He added: “But it’s not just consumers that are being squeezed. Many businesses on the supply side of retail are experiencing pressures. Commodity prices are on the rise and oil, while still low compared to the highs of 2014, is growing in price, which makes the international supply chain costlier.

“It’s also worth noting that the Chinese government continues to put pressure on its manufacturers to lower emissions, which is hiking up prices of goods coming from there due to an increased domestic production cost. For non-food retailers in the UK and elsewhere, this could have an ongoing impact on their import costs, and potentially translate into further price increases.”

JML chief financial officer Patrick Leahy commented: “The August inflation figure is certainly higher than many people expected, representing an even greater squeeze on consumer spending power.

“Practically, this means that many retailers are facing increasing pressure to find efficiencies and reduce costs in order to remain competitive, as customers whose wages are stagnating and whose spending power is being eroded seek out bargains.

“Certainly, the retail sector will be refocusing on basic and essential items, while luxury items will likely suffer.”

He added: “Those retailers that can trim costs will inevitably be the winners. If prices continue to rise at this rate, then expect more reorganisations and cost cutting in the bricks and mortar sector.

“The increase in business rates may also need to be rethought, with retailers already having to fight on many fronts.”

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