Blog: If you don't start swimming, you'll sink like a stone
Petah Marian | 2 March 2011
Speaking at the Verdict Consumer Satisfaction Awards yesterday (1 March), analyst Neil Saunders painted a fairly bleak outlook for the UK retail sector in 2011.
While 2010 showed some glimmer of hope, Verdict's Saunders said that we are headed into an "economic storm" and that, based on historical indicators, it will take some 15 quarters to fully recover.
"The pace of recovery is never very even. It is always quite choppy, but I do not think we will go into a double-dip recession," said Saunders. However, he noted: "It is very important to understand that we are not quite out of the woods yet."
Saunders said that in 2011, unemployment is set to rise and consumer earnings, deflated by CPI inflation, are set to be down some 2.2% in 2011, with no real growth forecast until 2015.
Saunders outlined food price rises of 3.2% this year alongside customers facing additional pressure from higher household costs, increased taxes and higher interest rates.
Nevertheless, despite forecasting a decrease in real household disposable income of 1.5%, Saunders still sees opportunities for the retail sector.
He said that while customers will become price sensitive, something just-food has already seen in the latest batch of Kantar Worldpanel stats, the retail sector may benefit from some of the consumer trends outside retail - for example, fewer foreign holidays and meals out.
Saunders described a "polarised consumer", who are on one hand willing to treat themselves with premium products to make up for fewer restaurant meals, while on the other seek value as they feel increasingly squeezed.
In light of this, he is forecasting the premium sector to see sales growth of 6.7% this year, while the value channel is forecast to grow 5.1%. Mainstream ranges are expected to see sales rise 2.2%.
For retailers, Saunders suggests it is critical to provide "every day value and every day excitement". He highlighted Waitrose, which was voted as the UK's favourite grocer in the Verdict awards, for launching a "good entry-level range" last year. He also suggested that retailers "ensure clarity" and make it crystal clear to consumers why something is either premium or value.
Saunders argued that retailers really can't play it safe out of fear, and that they think harder and smarter about what they do, because, he said: "If you don't start swimming you'll sink like a stone."
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