Retailers should brace for 2009 as worst year on record - Verdict Research

09 Dec '08

5 min read

Despite a reduction in VAT and extensive discounting by retailers, the high street is suffering badly. However, the New Year will not bring about a change in fortunes and retailers should brace themselves to cope with one of the worst years on record in 2009.

As pressured consumers look to save money, high street spending will go into reverse next year and retail profits will nosedive. According to Neil Saunders Director of Verdict Consulting – the specialist division of Verdict Research – in an analysis conducted on behalf of ActiveResilience*, 2009 will prove to be the real crunch for many shops.

Unprecedented decline in sales will wipe billions off retail profits next year:
Pressure on the high street will not ease after Christmas and is set to intensify in 2009, according to research produced by Verdict Consulting for ActiveResilience. Excluding internet sales and sales at grocery multiples, retail spending growth on the high street will shrink by over 4%, the largest drop since Verdict's records began in 1965.

This slower rate of growth at a time of increasing costs could potentially wipe £3.6bn off the collective profits at leading retailers in 2009.

Spending growth at all time low in 2009:
Over the long term, the recent cut in VAT will do virtually nothing to reignite consumer spending in 2009 and shoppers will spend over 4% less on the high street than they did in 2008, Verdict has forecast. Such a sharp fall will be the worst performance since Verdict's records of consumer spending began in 1965.

A more cautious consumer, a higher proportion of spending made on food because of price inflation, and the cannibalisation of the internet will all contribute to the high street's decline. “2009 is going to be one of the worst years on record for the high street” says Neil Saunders, Consulting Director of Verdict Research.

“The consumer purse is under significant pressure and while a cut in VAT may help household budgets it is economic naïveté to think it is going to make consumers embark on a spending spree”.

The pressure on the consumer is intense. According to Verdict, over the past ten years consumers have consistently spent more than they have earned: income growth has run at an average of 2.4% a year, but has been outstripped by spending growth which has grown by 3.3% a year.

The shortfall has been made up both by consumers dipping into savings and consumers taking on additional debt. This has left household finances in a precarious position and has decimated the appetite to spend.

“The consumer is unprepared for this downturn, most are in an incredibly weak position to deal with it and there is simply no wriggle room in household budgets” comments Saunders. “No amount of VAT cutting is going to change that.”

2009 will not be the end of it:
Although the deterioration in spending will ease after 2009, the high street, excluding grocery and internet sales, will continue to face a difficult time well past 2010 and positive growth is not expected to fully return until 2014.

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