As per recent data release by British Retail Consortium (BRC) and advisory firm KPMG, the British retail industry has delivered its weakest performance in 2019 with sales falling for the first time in 24 years. The sector which had survived the 2008-era financial crisis without sales growth going southwards is facing unprecedented situation this time with record number of job losses, shop closures and corporate restructurings being registered. The primary factor for this situation this time is not on account of the weakness in the British economy on account of Brexit or the global slowdown but mostly on account of stiff competition being meted out to the industry by online sales portals.
The British retail industry has the one of the largest revenue generators and the largest employers among all British industries. Over the years, the industry has expanded by opening more and more stores and employing more and more people and has invested in increasingly more physical infrastructure. However, the advent of internet has brought tremendous possibilities to transform business and commerce like never before. The ability to make payment electronically from the comfort one’s home makes it convenient for people to not go out to stores to buy their provisions. This new possibility in retailing is being facilitated by the internet and a number of entrepreneurs from all corners of the world have commenced online businesses to sell anything and everything that could be sold. Mega global online retail corporations like Amazon and eBay of the Dot-Com era are example of how far the online retailing business has progressed in such a short period of time.
It is not that the traditional retail industry did not get an early warning of this threat nor it did not try to put up a tough competition but what eventually started working against the traditional retail industry is the gradual shift of peoples’ preferences. The online trading companies have been able to bring in increasing amount of innovation in their operations with more and more differentiated offerings, call it in terms of freebies, cashbacks or deep discounts, they have over a period of time made the traditional style of retailing redundant. The biggest problem in traditional retailing is renting of and or owning large commercial spaces that add significantly to the cost of operations which eventually reflect in the prices of the goods being retailed. The second and the trickier problem is the number of people that the industry hires, which creates serious problems when a retailing company tries to restructure and streamline. Governments, on the local and national levels, also discourage laying off people in this industry and this industry has the unique distinction of being able to employ people with all levels of skillsets in high numbers, right from unskilled labors to highly skilled marketing professionals.
While the threat posed by the online retail industry has been festering for some time, much closer in the timeline is the domestic situation of Brexit that has had a market impact on the British retail industry. Britain’s decision to part ways with the European Union brought about complexity and confusion that has made the business environment in the Continent highly volatile. The biggest threat that the retail industry is facing because of Brexit is that of shortage of labor and sourcing of materials. The British economy for a long time, since it had been the member of the European union, benefited form cheap labor which arrived from other European countries to find jobs and make themselves more competitive. Post Brexit, there will be greater restriction on the movement of these people prompting the British retailers to face a temporary labor crunch and in the medium term to bear more costs as local labor will have to hired at higher wage rates. The second problem is that of sourcing of material. Because of cheaper manufacturing facilities outside of United Kingdom, many of the retailers over the years have started to source their merchandise from these countries, leading to a shortfall in the production of these goods within the country. With Brexit having taken place and higher tariffs being imposed on imported merchandise, the British retail industry would, in the short run, have to make a beeline for local suppliers which would only come at a higher cost. Given the above, and the falling consumer spending due to deteriorating economic conditions in the country resulting in lower footfall has forced many a retailers to shut shop in the instant case.
Another thing that is often ignored and has a marked impact on the traditional retail industry is the increasing preference of manufacturers and brands to directly reach out to the consumers without having to seek the services of middlemen like retailers. While it is possible because of the internet age, this is slightly different than online retailing. Online retailers are middlemen only like traditional retailers, while manufacturers and large companies always have to scope to directly reach out to consumers and cut down on the cost being incurred on account of a middleman. In the past decade several fashion labels and other manufacturing and direct selling businesses have come up in United Kingdom registering significant revenue growth over the years and giving serious completion to brands who have been using the traditional route.
Having considered the above it can be said that the retail industry in general the world over is going through a transformative change. The phenomenon of online retailing is here to stay and will even grow stronger with time. The traditional form of retailing will have to transform, not to compete with internet retailing but will have to find ways to integrate with it. Over time, this line of distinction between online retailing and traditional retailing will become blurred. However, it is still foolhardy to say that or believe that 2019 marks the beginning of the end of traditional retail industry in the United Kingdom. The problems in the industry have been aggravated by the temporary phenomenon of Brexit and will likely improve in 2020 after the passage of the event.
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