Executive Summary

The largest increase has been in sales through household goods stores, which include furniture and lighting, electrical appliances, hardware and do-it-yourself (DIY). It is these retailers which have benefited most from the recovering housing market and the bonus of building society windfall tax payments. Over the period, their sales have increased by slightly more than 30%, with the largest contribution (39.7%) coming from retailers of electrical household appliances.

Predominantly food stores represent the largest segment of UK retailing, with 37.6% of the total market. Since 1993, total food sales have increased by 23%, but in the more vibrant supermarkets and convenience store sector, which represents 37.6% of total retail sales, growth has been 29.6%, which compares with a suffering specialist food sector in which sales have declined by 3.6%

Table: The UK Retail Market at Constant 1993 Prices(£bn and %), 1997

Measured by the volume of sales, the UK is the fourth largest retail market in Europe, behind Germany, Italy and France, but it is the second largest, just behind Italy, when measured by the number of people employed.

Over the next 5 years, between 1998 and 2002, Key Note forecasts total retail sales in the UK will increase at current prices by 20.3%, slightly less than in the previous period, but in real terms net of inflation (over the period forecast at a cumulative 9.6%), this still represents a growth of 1.4%. Sales are expected to slow from the middle of 1998 to the end of 1999, but thereafter are forecast to accelerate once more, reaching an average growth of 4.9% per annum towards the end of the forecast period.

Viewed by market, a major area of growth will be in electrical appliances, which will be a major contributor to the cumulative increase of 30.9% forecast in the household goods sector. Growth will be more modest in most of the other sectors of the market (around 18.5%), with the exception of ‘other retail stores’ (22%) where opticians and some cosmetics, toiletries and specialist retailers are enjoying good business. The home shopping and non-retailing and repair segments are forecast to barely keep ahead of forecast inflation.

In the period from 1998 to 2002, there will be significant new influences on the UK retailing market.

With the arrival of the new Labour Government, the control of UK base rate management was passed to The Bank of England and, as a result, the market should anticipate continuing intervention by the Bank as it uses base rate to control inflationary pressures. During 1999, the Government will introduce a statutory minimum wage at a level of £3.60 per hour, which will have a significant influence on many retailers. Also, probably before the year 2002, the UK will face a critical decision regarding the UK’s future membership of the European Monetary Union (EMU).

Problems for smaller retailers will arise as a result of the Competition Bill, currently being progressed through Parliament, which will have an influence on resale price maintenance, and large food retailers will continue to suffer from the previous Government’s planning restrictions on new out-of-town shopping developments, which are being maintained.

Demographic trends in the UK retail market include the continuing growth of single-person households; women taking an increasing share of the total workforce; and the ageing of the population.

More people are working from home and changing lifestyles are affecting shopping patterns, meaning less frequent trips for the once a week major shop and more top-up shopping in supermarkets, which are increasingly being used as convenience stores.

Six out of ten UK adults have some form of retailer loyalty card, and retailers are collecting huge amounts of information about their customers’ shopping habits. Whether the retailers find a way of using the information to gain a bigger market share or more sales remains to be seen, but in the meantime most customers have said the shops they visit regularly are more interested in them now compared to 1995.

In 1997, shoppers in Britain spent nearly £100bn with their credit and debit cards; more than double the amounts of 4 years ago. People are carrying less cash, choosing instead to pay by plastic. In 1997, for each pound spent in the High Street using plastic, 34 pence was via credit cards, totalling £55bn in the year, with £45bn via debit cards.

The environment is an increasingly important concern of Government and the consumer, and, in response, major retailers are required to continuously demonstrate their endeavours to protect it.

Banking services are now offered by most major food retailers; and own-label sales are forecast to grow at a slower rate as consumers show signs of resenting the large-scale disappearance of branded products.

The UK retail industry is dominated by large food multiples, which in 1997 accounted for more than 37% of total retail sales. Increasingly, these retailers are expanding into other non-food segments, and in doing so they tend to mop up the business of smaller retailers operating within their catchment area. The latest inroads include pharmaceuticals, books, cosmetics and electrical home appliances.

Size is no protection in such a volatile market, and over the period from 1993 to 1997 there have been a number of major mergers and acquisitions. Within food, Kwik Save has been acquired by Somerfield; and in non-food Great Universal Stores (GUS) has gained Argos; Sears has disposed of its interests in shoe retailing; Littlewoods has sold a number of stores to Marks & Spencer; WH Smith has sold Waterstones, Our Price and its interests in Do-It-All; and J Sainsbury has acquired Texas Home Care.

With the launch of digital broadcasting, the market anticipates buoyant sales in electrical home appliances and, in time, spectacular development in home shopping services via television (TV) and the Internet. Before this happens, however, serious changes are needed in the infrastructure to allow more homes affordable access to the new services and more security in the transfer of payments.

The scope of developments in UK retailing is enormous. The potential of a true European market supported by a common currency, as an important player in a worldwide network of electronic retailing is very exciting. How long it takes to realise this objective and what will be its impact on the traditional retailing scene, is a problem that will be exercising the minds of many major retailers, as they move through the first 10 or 15 years of the next Millennium.

Seventh Edition 1998
Edited by Simon Howitt
ISBN 1-85765-857-4

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