UK retailers predict sales growth despite sector gloom

• Almost three-quarters of large retailers expect to grow sales in next five years and more than half plan to create jobs

• New technology and smarter use of customer data among routes to growth

• Two-fifths of retailers plan to focus on improving the customer experience to help increase footfall

The UK’s largest retailers are confident of finding new ways to grow sales despite a “challenging” trading environment and their own expectations of a weak UK economy, according to a new report released today.

Lloyds Bank Commercial Banking’s latest Business in Britain report reveals that 71% of retailers are forecasting a turnover increase over the next five years, with only 16% expecting sales to decline. More than half (55%) of large retailers also plan to grow their workforces.

Findings from the survey of 200 UK retail businesses with a turnover of £50m or more – including more than half with annual sales of at least £500m – come at a time when retailers are experiencing difficult trading conditions.

Though official data showed a 3.7% rise in sales values in the three months to the end of July compared to the same period last year*, retailers continue to operate against a challenging environment. Grocery sales – seen as the most robust part of the sector – were flat in the 12 weeks to 11^th August**.

Bricks-and-mortar headwinds

Retailers have been acting to tackle the challenges facing those with physical stores. More than half (55%) say they have taken steps to reduce the cost of their store footprints, with rent negotiations (43%) the most popular option.

A third (34%) have shut stores in the past year and a similar proportion (35%) expect to close shops in the next 12 months. One in five retailers (19%) has undertaken a company voluntary arrangement, an agreement with creditors with the aim of reducing costs.

Philipp Gutzwiller, Large Corporates head of retail at Lloyds Bank Commercial Banking, said: “We’ve seen plenty of evidence of bricks-and-mortar retailers acting to secure their futures, from talking to and negotiating with landlords to shutting stores. It’s clear there is more of that to come but retailers recognise they cannot rely on cutting costs alone.

“The demands of UK shoppers, who are among the most sophisticated in the world, mean retailers must take a creative approach, ensuring the consumer experience continues to evolve at pace.”

Looking ahead

When thinking about online and bricks-and-mortar retail, the top priorities for boosting sales include implementing new technology (39%), either in-store or in their operations, smarter use of customer data (26%), and building customer loyalty (25%).

Some 83% of retail businesses believe their business models are well-suited for the future or can be adapted to survive. Bricks-and-mortar retailers plan to keep shoppers coming through the doors by focusing on improving the customer experience (39%), offering click-and-collect (37%) and holding in-store events (35%). These all come ahead of simply offering discounts (33%).

Operating in a tough climate

Almost a third (30%) expect the UK economy to grow in the next 12 months but more (38%) think it will contract. Amid this challenging environment and the impact of technological change on operating models, the report reveals that almost nine in 10 retailers (86%) say they believe the UK high street is experiencing a crisis.

Philipp Gutzwiller added: “The challenging environment we hear retail CEOs refer to time and again is providing both threats and opportunities. Weak consumer sentiment, rising costs and intense competition are part of the perfect storm that has battered the sector recently – and these may be just some of the reasons why those in the industry are experiencing such testing times.

“Yet amid the pain felt, retailers are being pushed to think boldly and innovatively about their proposition to ensure they remain relevant and viable retail brands today and into the future.”