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Pressure mounts on retailers as prices fall but costs rise

Retailers are facing increasing pressure as discounting continues to drive prices down while the costs of doing business steadily increase. 

The average prices of clothing and footwear were down 5.9% in March compared with the same month last year, the British Retail Consortium’s (BRC) Shop Price Index shows.

It blamed the fall on “intense” discounting on the high street. Retailers on Sale this week included Asos, Debenhams and Dune.

Meanwhile, costs are mounting. Last week, the national living wage increased to £7.50/hour for all staff over the age of 25, while this week the new apprenticeship levy came into effect for all employers with a payroll of £3m or more. 

At the same time, business rates are rising in some areas, and the weakness of sterling is continuing to put pressure on input costs. The pound is equivalent to $1.24 and €1.16.

BRC chief executive Helen Dickinson said discounting was likely to continue as the market remains challenging.

However, she warned that retail prices would eventually have to rise to counter the currency weakness: “Shop prices continue to fall on an annual basis, partly driven by discounting on fashion. However, the magnitude of the depreciation in sterling means we can expect shop prices to begin rising at some point this year.”

The managing director of one footwear brand agreed that price rises were inevitable: “Our hedging runs out halfway through this year, so we’ve had to put prices up for autumn 17 and our retail partners will, too.

“We’ve got to put our heads down and work on cutting costs to make sure we are as competitive as we can be. We won’t know how the trade deals will fare until we’re a lot closer to that two-year mark. It’s an extended period of uncertainty.”

Hawes & Curtis chairman Touker Suleyman said the economic climate would force changes to rents on the high street.

“It is generally tough out there and we have the perfect storm of Brexit, the dollar, rising costs and discounting combined with falling demand. Anyone with a lot of stores will struggle.

“Over the next five years we’ll have a new landscape. The question is what are landlords going to do? I think upwards-only rents will be out and we might see some turnover rents or more flexible leases, otherwise there will be a lot of empty units.”

One property agent agreed that rising business rates will likely result in lower rents in some areas: “The market for high premiums on Regent Street and Bond Street has been killed right off,” he told Drapers.

“We saw this a bit in shopping centres last year, when some landlords decided they’d rather take a hit on terms to secure a letting. Proactive landlords will be more flexible to keep things moving but it is tough and there have been quite a few retailers taking a long time to sign or pulling out recently.”


Readers' comments (2)

  • As pressure mounts on retailers are we that far away from the next wave to retrospective discounts being applied to outstanding invoices received from suppliers?

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  • Retailers have to put their prices up and should stop whinging about rent and rates. If you can't stand the heat and all that.

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