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Hold on tight for a bumpy ride to 2011

The latest figures say retail sales will contract this year, so it will be vital for retailers to hang on to every customer and every pound they spend.

By now, retailers are well aware that 2009 will be one of their toughest years ever, with 2010 not expected to offer much respite. But they can take comfort from the fact that growth is on the horizon from 2011 and beyond.

According to analyst Verdict Research, the forecast for UK retailers in 2009 is gloomy, with gross domestic product (GDP) growth set to shrink by 2.2% this year and consumer spending in retail falling by 0.7% – the first time Verdict has recorded negative growth for this figure.

But at a presentation in Londonlast week called What lies ahead? The Future of Retailing, Verdict director Neil Saunders said GDPwould continue to show negative growth for the next nine quarters until the end of 2010. “2008 was just the warm-up act,” he says. “We had a lot of bad headlines, but in real terms a lot of the downturn was confined to the financial sector. Now it’s creeping through to the real economy.”

Consumers will become more demanding, particularly about service

Rupert Eastell, BDO Stoy Hayward

Saunders adds that this recession will be worse than previous downturns because all sectors will be affected. The wave of unemployment will move from the financial sector to manufacturing, where it has already hit, and on to services before finally reaching the public sector. Unemployment is set to peak in the first half of 2010 at 3.1 million.

This, combined with falling house prices and a high level of personal debt (consumer debt in 2008 was £1.4 trillion compared with £562 billion in 1998), will severely dampen demand, with 4.7 million individuals being directly affected by the recession through unemployment or reduced earnings.

According to Saunders, those consumers who gain cash during the recession from lower interest rates and other falling living costs will be more likely to pay off debts rather than increase retail spend.

However, some retailers are benefiting from the downturn, particularly in value and young fashion. New Look and Peacocks, for example, saw like-for-like sales rises of 2.8% and 1% respectively for the 14 weeks to January 3. And young fashion chain All Saints reported a 43% rise in like-for-likes for the year toFebruary 3 2008.

More encouraging still is last week’s retail trading update from Verdict and accountancy firm BDO Stoy Hayward. Retail spend is set to grow by 2% in 2011, 2.5% in 2012 and 2.9% in 2013. It’s a far cry from the average annual growth rate in retail spend of 3.9% between 1997 and 2007, but provided retailers keep innovating, they should see out the downturn, according to BDO Stoy Hayward head of retail Rupert Eastell.

“Consumers will become more demanding, particularly about service,” he explains. “For retailers, maintaining market share will be critical and it will be harder to make gains.”

Separately, Verdict unveiled its annual Consumer Satisfaction Awards last week, which ranks retailers based on the opinions of 6,000 shoppers. Department store group John Lewis was voted the UK’s favourite retailer for the second year in a row. TK Maxx, Brantano,Clarks, Marks & Spencer and Shoe Zone all made Verdict’s top 10.

Saunders says the success of these retailers is down to their understanding of their customers. “Overall, there will be no growth in the market this year, so holding on to every customer and every pound they spend is critical,” he explains. “Retailers that don’t understand their customers will lose out.

Award winners

Verdict’s top retailers:

  • John Lewis
  • Ikea
  • Amazon
  • TK Maxx
  • Avon
  • Brantano
  • Waitrose
  • Clarks
  • Marks & Spencer
  • Shoe Zone

Top clothing retailers:

  • John Lewis
  • TK Maxx
  • Primark
  • Marks & Spencer
  • Matalan

Top retailers with a footwear offer:

  • TK Maxx
  • Asda
  • Brantano
  • Marks & Spencer
  • Clarks

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