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As per a survey conducted by accounting firm BDO, the sales in the retail sector in the United Kingdom has jumped by 5.7 per cent in the month of January 2020, a high not seen since January 2014. This data comes on the heels of several of the economic indicators already showing signs of recovery since the victory of the Prime Minister Boris Johnson in the 12 December 2019 general elections. The sector had seen dwindling sales figures in the past couple of years due to the effects of pre-Brexit jitters, which saw several high street retailers shutting shop in the country.
The past couple of years and especially the past few months to 31 October 2019, when the Brexit withdrawal was supposed to happen before it was postponed again to 31 January 2020, were some of the most difficult times for the United Kingdom. The period was marred with politico-economic turmoil that was only second in magnitude to the 2008-11 era financial crisis when financial institutions collapsed in the United States and several European Union countries defaulted on the sovereign debt obligations. From the day the withdrawal of Britain from the European Union was announced in 2016 to the run-up to the announcements of the results of general elections held on 12 December 2019, the country was gripped in an atmosphere of uncertainty and gloom which was threatening to push its economy into a deep-drawn recession. The British consumer confidence, the British housing prices as well as a number of other leading economic and business indicators were all trending down with little or no response from various policy and monetary measures being activated by the Government and the Bank of England.
Things started to change during the period of September- October 2019, which made all these negative headwinds turn on their heads. The Benn Act which was enacted on 9 September 2019 made it impossible that a no-deal Brexit would take place. The other crucial event was the call for fresh general elections by Prime Minister Boris Johnson that took place on 12 December 2019, through which he was seeking a referendum of sorts for the draft Brexit deal that he had negotiated and agreed to with the European Union Officials. These two events thus marked, the first culmination of this period of uncertainty and turmoil which finally came to pass on 31 January 2020 when the United Kingdom withdrew from European Union at the stroke of midnight. The country now stands at a point where old economic structures are being demolished, and new ones are being built. On the evening of 31 January 2020 when the event was to pass, the British Prime Minister addressed the nation and called upon all countrymen to rise up to meet this new challenge to rebuild the country and to respond to the new challenges of the upcoming century and place the country foremost among all others in terms of competitiveness and the general state of human welfare.
The Retail sector, among all sectors of a country, has a unique character and is differentiated from all other sectors of the economy in many respects. First, a significant amount of business carried out in this sector is in cash, second, the number of times businesses are able turnover in a year, i.e. able to convert their stock into cash in a year is very high compared to other industries. Third and the most important aspect of this industry is that it deals mostly in consumer durables and consumer essentials, attracting a very high consumer footfall. The industry, though not seen as a strong leading indicator of an economic downturn, but sales usually boom for the industry in times of economic recovery and it signifies improving consumer sentiments coupled with a sudden release of pent up consumer demand. The revenue and growth figures of this industry are amongst a few important leading indicators that academicians, researchers and analysts use to infer if an economy is on the recovery path or not. However, there needs to be signals from more than one leading indicator pointing towards improving circumstances before one can be sure that the economy is finally coming out of the woods.
Other than Brexit, however, there have been other problems also that have marred the industry lately. Over the past several years, the retail industry had expanded rapidly by opening more and more stores and employing more and more people and investing in increasingly more physical infrastructure. However, the advent of internet age has brought with it tremendous possibilities to retail in the virtual space. This new technology was able to transform business and commerce like never before by bringing in greater efficiencies in the business by doing away with expensive retail rental expenditure, a characteristic of traditional retailing. The ability to transact electronically in the comfort oneâs home makes it convenient for customers to not go out to retailing outlets and supermarkets to buy their provisions. The revenue and profitability potential of this new segment within the retailing space being facilitated by the internet age, attracted countless entrepreneurs. Prospective business tycoons from all corners of the world started establishing their online retail ventures and started to sell anything and everything that was possible to sell within the constraints of this technology. Mega global online retail corporations like Amazon and eBay of the Dot-Com era are an example of how far the online retailing business has come in such a short period of time.
The growth in the retail industry in January 2020, though, seems sustainable, but there is a high possibility that it may not sustain for more than a few months before it slows down again. The pent-up demand for the last couple of years in the space has a certain part to play in this sudden growth in numbers. The real sustainable growth rate in the sector could very well be known towards the second half of the year. There is one more factor, however, that is worth mentioning here which is that of the coronavirus which has abruptly raised its head in China. The outbreak could very well put an abrupt break on this nascent recovery in the sector.
