-U.K. retail industry suffers weakening demand and rising costs
Consolidation in the U.K.’s struggling retail market is almost inevitable with changing customer preferences and ongoing uncertainties over Brexit. However, the U.K.’s Competition and Markets Authority blocked Sainsbury’s planned £7.3 billion supermarket merger with Asda based on the need to defend customers’ rights. This is a clear message from the regulator that the era of consolidation is not welcome if it is at the expense of consumers. However, it is highly likely that due to the retail industry’s ongoing struggles, more firms will opt to go down the route of merger & acquisitions.
Last week, the chief financial officer of the struggling retail chain Debenhams, Rachel Osborne, said that the first phase of closures of 22 stores echoes the reality of the U.K. retail environment. The retailer says the store closures, which will impact 1,200 staff in its first phase, will start next year. Once 50 store closures are complete, Debenhams will be left with around 116 stores in the U.K.
According to a Deloitte report on the U.K. retail industry for 2018, “Consumer confidence fell in the second half of 2018 and, with uncertainty around ongoing Brexit negotiations, a global economic slowdown and a China/U.S. trade war, consumers remain cautious.”
The report added that “at the end of 2018, e-commerce was 20% of all retail sales. Although the majority of sales still take place in-store, the bulk of growth is coming from online. For some, online is fast becoming the channel and, with this shift, there is a need to balance investment growth with store profitability.”
The next few months will determine to what degree the retail industry will be either reshaped or squeezed between weakening demand and rising costs.