Emily Burditt, Account Manager, PHA Media
2015 was a turnaround year for many in retail: employment levels hit a record high, real wage growth reached its highest since 2007, and consumer confidence was strong.
However, it wasn’t all plain sailing; footfall in stores was down overall, pre-Christmas shopping was in many cases irregular and sales only grew by 1% in December, a critical month. Some retailers, like Sports Direct and Next particularly suffered due to the mild Winter.
In another concerning trend, households appear to be shifting how they spend their disposable income, moving away from material goods to experiences.
Looking forward, 2016 looks like it could be particularly difficult year for retailers. China, the world’s second largest economy started the year with dismal growth, oil prices continue to tumble (and could collapse further as Iran resumes exports) and it is likely we will soon be seeing a rise in interest rates, causing consumer confidence to waiver.
Politically, although the Coalition, and now the Conservative Government has been broadly good for business and retail, there are some significant challenges on the horizon for the sector.
Already, the Government has announced that they will push ahead with introducing changes to Sunday Trading Laws, provoking fierce debate in the retail sector and it is likely that the Government will face significant opposition on its own backbenches.
The EU referendum which is likely to take place at the end of this year will be particularly problematic. If polls are to be believed, the result will be tight and is likely to cause a drop in consumer confidence. A vote to stay in would likely restore this, but a vote for out could be challenging, especially if it causes a shock in the financial markets. Retailers should pragmatically throw themselves into this debate and make their case to the public about why they think the UK should stay, or leave, the EU. This will not just help make the public’s mind up, but it also offers a powerful opportunity for the retail sector to engage the government and lobby for EU reforms that would make their lives easier.
Ever-increasing regulations upon retailers in 2016 will continue to be a challenge, particularly in relation to employing staff. Following a shock announcement in the Summer Budget, every retailer will be compelled to pay all of their staff aged 25 and above £7.20 an hour, rising to “at least” £9 an hour in 2020. A significant additional financial burden, that is likely to hit profits across the sector.
In a similar vein, the Government is introducing a new apprenticeship levy which will fund an extra 3 million apprenticeships. The levy will be set at a rate of 0.5% of an employer’s gross pay bill, applying to companies whose pay bill is over £3 million per year. Although it won’t be introduced until April 2017, it is essential that the retail industry presents a united front to the Government to ensure that the final scheme is well thought through and beneficial to both apprentices and potential employers.
Another key change will come with the conclusion of the Government’s long awaited review of business rates, with changes expected to be announced in the 2016 Budget. It is unlikely that there will be significant reductions to the business rate burden, the government preference being to cut corporation tax. The expected outcome is that local councils will be given control over their rates, in attempt to encourage healthy competition at the local level. However, in times of austerity and with local government budget being continually slashed, it remains to be seen whether councils will be able to cut rates in any meaningful way.
Combined, the cost of increased business rates, plus the extra expense of the National Living Minimum Wage and the upcoming apprenticeship tax will be crippling for many businesses (Retail Week estimates that it will cost the industry £14 billion over the next five years). Exacerbated by any worldwide economic slowdown, this may necessitate price rises for consumers, employing smaller work forces, new technology, and store closures,
It is clear that many of the changes expected this year were hurriedly-made, for political purposes, and with limited consultation with the industry. It is essential that this does not continue.
Retailers should act now to ensure that they have a strong public affairs operations in place. And be increasingly confident to engage with the government on policy areas that might affect them. Success in making a case to government could literally make or break this years figures.
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