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Introduction

Verdict Research: The credit crunch and rising global cost inflation have added a new dimension to the already challenging environment UK retailers face. These factors combined with the sector's maturity, overcapacity and more demanding consumers are leading to a raft of casualties. This report focuses on the issues and actions necessary to survive this testing trading environment.

Scope

An analysis of the economic background in 2008 and its impact on retailers, with supporting data.

Growth projections for the UK retail sector revealing the underlying drivers, and for individual categories, highlighting the challenges for each.

Space and channel issues including online sales' value and growth, price and proposition trends, polarisation of the market and changing consumers.

How retail evolution reflects a changing society the winners and losers and recommendations for a strategy for survival.

Highlights

Though our value growth projection of 2.8% for 2008 appears relatively strong, inflation will mean that volume growth will be its lowest for over a decade. Meanwhile there is an abundance of new space coming onstream and the online channel is outperforming, which is resulting in overcapacity and the dilution of space productivity.

Retailers' costs are rising, not just in the UK, but also in their global supply chains, which is increasing the pressure - particularly for those with a price-led proposition. Against such a challenging environment it is crucial to have a viable retail proposition.

The fragmentation of society is being reflected in retail, with the winners being those that have aligned their proposition most closely to their customers wants and needs. This is resulting in a much more complex operation, that has to deliver the right product, at the right price, at the time and place that customers demand.

Reasons to Purchase

Ensures an understanding of the major issues facing retailers in 2008 - essential in devising winning strategies in such challenging times.

Provides crucial advice on the actions necessary to evolve a retail proposition into one that is relevant to the current climate and retail trends.

Use the comprehensive analysis to inform executives at all levels of the challenges, opportunities, and strategies necessary to be a retail winner.

VERDICT VIEW 3
CATALYST 3
EXECUTIVE SUMMARY 4
Tough environment that will shake out weaker operators fast 4
Time to re-evaluate 6
ANALYSIS 7
Retail context 7
Pressures across the board 7
Hostile economic environment 7
Housing market slows down 8
Consumer spending squeezed 10
Disposable income shrinks 10
Retailers under pressure 11
Strain on retailers increases 11
Weakening demand and low sales growth 12
Inflation returns 13
Sector performance 14
Few winners in 2008 14
SPACE & CHANNEL ISSUES 16
Overcapacity 16
High space growth in low sales growth environment 16
Multichannel growth 17
Online sales triple 18
Retail loses share 19
PROPOSITION ISSUES 20
Price & price proposition trends 20
Price loses potency 20
Demand for retailers to edit choice 21
Premium outperforms 22
DEMAND ISSUES 23
Demographics - changing consumer lifestyles and expectations 23
45+s make greatest gain in number 23
Increasing importance of good customer service 24
Highest numbers in most budget constrained lifestage 25
Fragmentation of society 25
Environmental and ethical concerns 26
Greening of retail 26
Importance of ethical issues 28
OPERATIONAL ISSUES 29
Supply chain rethink 29
Cost growth vs sales growth 29
Seasonality 30
Communication 30
Advertising spend grows 31
Shifting spend by medium 32
Globalisation 33
Scope for new entrants 33
Managing stakeholders 33
SUMMARY & RECOMMENDATIONS 34
Time to re-evaluate 34
Shakeout of weaker operators 34
Changing nature of retail propositions 34
Retail mirrors fragmentation and polarisation of changing consumer dynamics 36

Figure 1: Context for UK Retailers 2008 8
Figure 2: Number of property transactions and y-o-y change % 1997-2012 9
Figure 3: Growth % in real household disposable income 1997-2012 11
Figure 4: Pressures for retailers 2008 12
Figure 5: UK retail sales and growth 1997-2012 13
Figure 6: UK retail price inflation/deflation and volume sales growth % 1997-2010 14
Figure 7: Y-o-y sales growth % by sector 2007 & 2008 15
Figure 8: Additional m sq ft retail space 1987-2012 17
Figure 9: UK online retail sales 1998-2012 19
Figure 10: Retail share of total consumer spending 1997-2012 20
Figure 11: Percentage of shoppers mentioning price as a driver of satisfaction 2000-2008 21
Figure 12: Changes in importance of edited range and wide choice 2008 on 2000 22
Figure 13: Segmental trends inUK clothing market y-o-y change % 2002-2007e 23
Figure 14: Service as a driver of loyalty 2008 25
Figure 15: UK population by age groups 2008 and 2012 26
Figure 16: Drive towards green retailing 2008 27
Figure 17: Retailers views on what matters to consumers 2007 29
Figure 18: Share of advertising spend by medium 2002 and 2007 33
Figure 19: Market conditions produce casualties 2008 35
Figure 20: Winning and losing formats 2008 36
Figure 21: Changing consumers and retail evolution 2008 37

Table 1: UK population changes and spend per capita 2012 on 2008 25
Table 2: Advertising spend and growth 2007 on 2002 33
Table 3: 20 clothing retailers new to the UK 2007-2008 35