The current culture of discounting is unsustainable. That is the message from retail think tank, KPMG/SPSL today, with it warning that if UK retailers continue to trade in the current fashion, it is likely to lead to an ever-increasing number of insolvencies.
The warning came as the group released its latest whitepaper, entitled ‘Discounting, promotions and sales are now a normal part of retailing practice but their widespread use is detrimental to the health of the sector.’
It warned that poor trading over the Christmas period, as well as lower margins due to heavy discounting, has left many retailers in a situation where they are risking insolvency.
It highlighted that pressures around margins, costs and demand are likely to increase before they are likely to lift, especially outside of food retail.
Speaking about the findings, Richard Hyman of Verdict Consulting said: "2008 will be yet another year when rises in retailers’ costs will outstrip growth in their sales. Following years of cost cutting, most of the low hanging fruit from this source has already been picked."
Echoing calls from other commentators within the white paper, he added: "Driving top lines will increasingly determine retailers’ fortunes going forward. Since the opportunity to further drive sales volumes as in recent years is clearly receding, and since we have seen negative price inflation in the non-food sector, sales at higher price points are essential.
"However, this cannot happen without improved added value," he added.
Source: Retail Bulletin