Report Finds UK Retail Market Among Toughest in the World

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UK retail

Retail’s demise is moving beyond the U.S., as price wars, changing consumer demands and a digital landscape continue to take a toll on the U.K. retail market.

According to Euler Hermes study, “Global Retail Disruption: Pressure and Potential in the Digital Age,” U.K. retailers are facing the most pressure to digitize their traditional business models in comparison to the other 11 markets in the study (U.S., Brazil, China, France, Germany, India, Italy, Japan, Russia, South Korea and Spain) thanks to things like Brexit, e-commerce competition and lower consumer spending.

Even though U.K. nominal retail sales increased by 3 percent since last year, low inflation (+0.7% in 2016) and severe price pressures have contributed to price wars among the nation’s retailers. These prices wars have bled many retailers—in the U.K. and around the world—dry of their financial resources, and that coupled with a failure to adequately adopt supply chain digitization meant profitability declined globally from 8 percent in 2011 to 5.7% in 2016. As a result, bankruptcies soared globally by 66 percent last year.

Consumers just aren’t willing to spend much more on products. According to a recent First Insight study, 90 percent of consumers expect discounts on the products they purchase. This mindset has prompted many retailers to risk their margins and discount items more in an attempt to secure more purchases.

“Retail is at a pivotal moment. Many traditional retailers face the urgent need to rethink their entire business model,” said Maxime Lemerle, Euler Hermes group head of sector and insolvency research. “The stark choice facing many retailers in the years ahead, however, is quite simply adapt or close.”

In the U.K. in particular, the retail scene remains unpredictable since consumers there are shopping less and e-commerce continues to have more appeal than brick-and-mortar stores. Lemerle identified three main challenges that retailers will face over the next five years. Global retailers—especially those in the U.K., he said—will struggle with providing a seamless omnichannel experience, maintaining an online presence without price wars and facilitating better mobile experiences.

Despite the U.K.’s challenges, however, the study said the country has the most potential to achieve complete digitization in the future. Currently, the most prominent issue U.K. retailers face is creating a mobile customer journey, followed by lacking funds to build an online presence, and mastering omnichannel. But these retailers could bridge the gap between in-store and online channels by leveraging IT and installing advanced payment methods.

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