There is more gloom on the horizon for the beleaguered UK high street in the first half of this year as lockdown restrictions weaken consumer confidence, according to the latest research.
The KPMG Ipsos Retail Think Tank forecast that retail health will fall by two points in the first three months of the year, as the renewed surge in the pandemic hits non-essential stores.
According to the report, consumer confidence is expected to drop and demand will weaken as many customers will have already stocked up on remote-working equipment and “stay at home” products such as loungewear.
The think tank said margins will be hit in the first quarter as retailers attempt to clear stock leftover from a disappointing Christmas trading period.
Meanwhile, costs are likely to continue to rise, the research found, particularly in the supply chain and the labour required to meet online shopping demands.
Retailers will also have to contend with post-Brexit bureaucracy.
“It is anticipated that only in the second half of 2021, after a successful and speedy vaccine rollout, will demand see a strong recovery,” the RTT report said.
The think tank said the retail health index rose by one point to 68 in the fourth quarter of last year, as customers splashed out on premium food and drink in the run-up to Christmas.
Food sales, which account for around half of UK retail expenditure in the UK, performed strongly in the quarter – aided by restrictions on pubs and restaurants – and technology sales were also up.
Meanwhile the shift to more online shopping led to a significant increase of costs associated with order fulfilment and delivery.
Ipsos retail intelligence director Tim Denison said: “Following the bounce in retail health in the fourth quarter, the next quarter is likely to paint a very different picture, as lockdown fatigue kicks in and consumers resume saving for sociable activities such as holidays, recreation and entertainment in times to come.
“Retailers will be facing a triple whammy at the start of 2021 of subdued demand, thinner margins and rising logistics costs, which will make this another challenging quarter.
“Consumers are well versed in how to live through a lockdown now, so we don’t envisage a return to the panic stockpiling that happened in the first quarter of last year.”