UK Retail Industry Overview
The retail sector incorporates any business or individual engaged with selling items legitimately to purchasers. Related divisions of the sector include the wholesale segment (which supplies retailers), the supply chain segment (which integrates wholesalers and producers or developers with retailers), and the manufacturing segment (which creates the items sold by retailers).
The retail sector is indispensable to any economy, and the United Kingdom is no different with the year 2018 overlooking at £381 billion worth of retail sales, a growth of 4 per cent, employing over 2.9 million people. 18 per cent of the total sales during the year were made online.
If we talk about the current scenario, Retail deals in the UK fell by 0.6 per cent from the earlier month in November 2019, denoting the fourth continuous month of no development in terms of trades and even falling short of the market estimates. There was negative growth reported in all the sectors with non-store retailing and nourishment stores contributing to the biggest fall. The Office of National Statistics (ONS) pointed that the official Black Friday was on November 29th, six days after the computation of the November reporting period, which could have had an influence on some store sector sales.
The United Kingdom MoM Retail Sales Chart
Source: Tradingeconomics.com | Office for National Statistics (ONS)
We will be discussing here the performances of two major Retail players in the United Kingdom market – J Sainsbury Plc and Tesco Plc to understand better the sector’s performance.
J Sainsbury Plc
J Sainsbury Plc (LON: SBRY) is a multi-channel retailer that offers groceries, general merchandise and clothing, products. The company operates retail outlets of various formats including supermarkets and convenience stores, under the banners of Sainsbury’s, Habitat, and Argos across the UK and Ireland. It also retails through the online channel. These stores offer fruits and vegetables, meat and fish, dairy, eggs and juice, pet food, baby and toddler products, beer, spirits and wine and chilled and frozen food and many more. The company also provides various financial services, including travel money, insurance, credit cards, and loans.
SBRY Financial Performance
On 7th November 2019, the company announced its interim results for the 28-week period ending on 21st September 2019. The group sales were reported to be at £16.856 billion, a decline of 0.2 per cent year on year, while the underlying earnings per share were highlighted to be at a decline of 16 per cent to GBX 7.9 per share during the period.
SBRY Stock Price Performance
As on 31st December 2019, at 08:30 A.M Greenwich Mean Time, while writing, J Sainsbury Plc’s stock price was reported to have been trading at GBX 233.50 per stock on the London Stock Exchange, a decline in the value of 0.38 per cent or GBX 0.90 per stock, in comparison to the previous day’s closing price, which was reported at GBX 234.40 per stock.
Tesco Plc (LON: TSCO) is a Welwyn Garden City, the United Kingdom-headquartered retail company and is amongst the world’s largest consumer goods’ retailer. The group mainly operates as a grocery retailer but also offers insurance and retail banking services.
TSCO Financial Performance
The group reported its first-half results for the period ended 24th August 2019 on 2nd October 2019. The group sales did not depict any year on year change and were reported at £28.3 billion, even though there was a 7 per cent decline in the Central Europe geographical segment. The statutory Profit before tax was reported at a year on year growth of 6.7 per cent while the statutory Diluted EPS was reported at a year on year decline of 4.6 per cent.
TSCO Stock Price Performance
As on 31st December 2019, at 08:35 A.M Greenwich Mean Time, while writing, Tesco Plc’s stock price was reported to have been trading at GBX 254.70 per stock on the London Stock Exchange, a decline in the value of 0.31 per cent or GBX 0.80 per stock, in comparison to the previous day’s closing price, which was reported at GBX 255.50 per stock.
Factors expected to impact the Retail space in the United Kingdom in 2020
- An end of a period of Political Uncertainty
The General Election result, following more than three years of political unpredictability, carries with it an impression of clarity in regard to Britain’s exit from the EU bloc. Various surveys suggest that this would be greeted wholeheartedly by majority of the UK customers at least for the time being, even by the individuals who feel that Brexit might not be effective for the United Kingdom’s economy or who think that it might not act as a catalyst of growth for the economy in the long term. Retailers likewise hope to feel the advantages of development invigorated by a recouping housing market of the UK in 2020. Despite the fact that various experts are carefully optimistic regarding the fact that the political steadiness will convert into improved sales on the high street in the next year, they are also worried as currently, there are a plenty of unanswered questions, including, but not limited to, the deterrents around tariffs as well as economic agreements for retailers. All things considered, the general thought of 'Brexit being done' is expected to inflate the positives of rising wages, low interest rates and record business levels from the political vulnerability that has made buyers mull over their expanded spending power as of late. Various researches additionally point to autonomous and smaller retailers as being fundamental to supporting development in the United Kingdom retail area in 2020. Some latest figures have demonstrated the independent retailers to be stronger as far as store shutdown in 2019 are concerned, giving a shopping experience and product range, wider, as compared to conventional retail centres, that larger players have traditionally battled to compete against. The experts have also pointed out that this puts these smaller retailers in a solid situation to keep them on the path of prosperity in the coming year.
- A year experiencing significant change
'Brexit vulnerability', as an excuse for terrible results has been delivered by numerous players in the market since 2016, yet the various surveys that have been conducted, claim that retailers will now have to move past Brexit “excuse” and commence on their development plans for the future. Hence, it can be said that 2020, while loaded with idealism, is likely to be a time of progress and change for the United Kingdom retail space. Those retailers who have adjusted their operations and 'endured the hardships' of the most recent three years will have a strong base on which to construct and thrive over the coming year. It has also been noticed that that various mid-market retailers are reaching the end of their business cycles, and these players are now starting to lose their attraction with shoppers. Budget as well as mid-range attire and footwear retailers, retail chains and malls will be at the focal point with a negative perspective, however, an expansionary Budget will boost the consumer sentiment and will help the segment revival.
- Easing out of the pressure of Rents
Cost savings will be an important factor for the retailers to look for in 2020, with experts suggesting a further 3 per cent to 5 per cent expected to be spared for the next year in this regard. Majority of the retailers will look to their property portfolio and reduction in rent costs as a probable area that can be considered to in 2020, expanding on the effective negotiations made in the trailing year.
While welcoming the new year, there is a sense of optimism but with caution for the United Kingdom’s retail sector. An apparent end to the political vulnerability that has tormented the economy and customers equally for more than three years will probably ease, if not end, for selective customers who will now open the strings of their wallets and begin to spend again. But again, it is not necessarily the case that retailers should take things easy and should not be on their guard as the customers will still expect great products to arrive into the market and investors will look for decent financial performance from these companies. Those that have essentially solid organisations – that can adjust to the changing economic situations that Brexit will bring, and the moving customer requests throughout the following a year – will have the option to exploit the situation following the General Election.
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