Retailers warn Chancellor: don’t make our costs even higher

              

 

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

Christmas is approaching, but Britain’s shoppers are becoming more cautious just when retailers need them to start spending. Consumer confidence in the economy fell in September for the first time after four months of improvement, expectations for retail spending weakened and households became gloomier about their own finances. For Britain’s small shops, market traders and independent online retailers, the timing couldn’t be much worse, and the BRC is telling the Chancellor that the Budget must avoid adding to the employment, energy and business-rates costs already squeezing the sector.

SHOPPERS ARE PULLING BACK

The latest BRC-Opinium Consumer Sentiment Monitor shows expectations for the economy falling from -28 in August to -34 in September. Expectations for personal finances also deteriorated from -9 to -15, while expectations for retail spending fell from +8 to +5.

Overall spending expectations remained unchanged at +15, so consumers haven’t suddenly stopped spending altogether. But the figures suggest they’re becoming more cautious about where their money goes, and that matters as retailers enter the crucial final months of the year.

CHRISTMAS MAKES THIS MORE IMPORTANT

For small retailers, the timing is particularly uncomfortable because the final quarter can determine whether the year produces a profit or a loss. Stock has to be ordered, staffing decisions made and cash committed before businesses know exactly how strong Christmas demand will be.

Large retailers have more scope to spread risk across hundreds of stores, product categories and online channels. A micro retailer with one shop or a relatively small online operation has far less room for error if customers suddenly decide to rein in discretionary spending.

THE TRIPLE BLOW

The BRC is warning the Chancellor against adding to what it describes as the triple blow of escalating employment costs, energy bills and business rates. It wants the business-rates multiplier frozen to prevent another increase in retailers’ costs.

The latest BRC figures show shop-price inflation actually edged down from 1.5% in August to 1.4% in September. The organisation says retailers have been absorbing rising costs and using promotions and price reductions to support demand, but warns there is a limit to how much more businesses can shoulder.

EMPLOYING PEOPLE IS EXPENSIVE

Employment costs are particularly important for shops because retail remains labour intensive. Small retailers need people behind counters, receiving deliveries, filling shelves, packing online orders and working longer hours during busy periods.

When the cost of employing somebody rises, a small business has limited choices. It can absorb the cost through lower margins, increase prices, reduce hours or employ fewer people, and none of those options is particularly attractive when consumer confidence is already fragile.

ENERGY HASN’T GONE AWAY

Energy remains another major concern, particularly for food retailers and other businesses dependent on refrigeration, heating or long opening hours. Higher energy costs don’t simply affect the shop’s own bill because they also feed through transport, manufacturing and supply chains.

The BRC says households are themselves preparing for higher winter energy costs, which creates a double problem for retailers. Businesses face their own energy bills while customers potentially have less disposable income available to spend in their shops.

GROWTH IS STILL WEAK

The latest S&P Global flash PMI provides little reassurance. The UK private-sector output index fell from 52.5 in August to 51.7 in September, its weakest reading for three months, although it remained above the level indicating contraction.

S&P says September’s reading is consistent with quarterly GDP growth of only around 0.1%, while the average for the third quarter points to growth of approximately 0.2%. High energy prices, business costs, geopolitical concerns, borrowing costs and uncertainty ahead of the Budget were all reported as drags on activity.

THE OECD SEES A BETTER PICTURE

There is some better news from the OECD, which now expects the UK economy to grow by 1.1% in 2026. Its September outlook is more positive about UK growth than its July assessment, although higher energy costs and inflation remain important risks.

That provides some grounds for cautious optimism, but forecasts and experiences aren’t necessarily the same thing. A small retailer watching customers hesitate over purchases or seeing fewer people through the door is going to judge the economy by what’s happening at the till rather than a forecast for national GDP.

CHRISTMAS WILL BE THE REAL TEST

Small retailers need consumers to feel confident enough to spend while simultaneously dealing with their own rising costs. That makes the combination of weakening sentiment and higher business costs particularly uncomfortable as the most important trading period of the year approaches.

The BRC wants the Budget to avoid making those costs worse, starting with a freeze in the business-rates multiplier. Whatever decisions the Chancellor ultimately makes, Britain’s small retailers will soon get a much more immediate economic verdict when customers decide how much they’re actually prepared to spend this Christmas.

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

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