Retailers hit hard in 2015 as consumers enjoy unprecedented discounting


Consumers have little to complain about following a year of rising disposable incomes and unprecedented discounting, but the story is significantly less positive for retailers.

The supermarket price war shows no sign of abating and consumers have now enjoyed more than 12 months of continually falling prices.

But they are pocketing the benefits rather than splashing out on substantially more grocery items, according to analysts Kantar Worldpanel, equating to £1.5 billion taken out of the market in the last year - and saving each household £58 on average.

Shoppers have embraced a new order, turning in their droves to the discounters Aldi and Lidl, leaving a resurgent Sainsbury's the only one of the major players to notch up a rise in sales in the most recent figures.

Aldi and Lidl are enjoying spectacular sales growth, now holding a 10% share of the market between them, with their growing popularity driving prices down across the sector as the Big Four try to keep pace.

Elsewhere consumers have adopted a steady diet of discounts which they show no sign of willingly giving up, with even major sales events such as Black Friday and Cyber Monday failing to draw large amounts of shoppers - who now consider money off to be the norm - on to the high street.

The CBI summed up 2015 by saying it was a tough year for retailers.

Barry Williams, the CBI's distributive trades chairman, said retailers were expecting 2016 to start in "much the same vein".

Its end-of-year survey showed the weakest expectations for business among retailers since May 2012.

The CBI has also warned that economic growth could be hit by increasing costs such as the new national living wage, reporting that a survey of 342 companies revealed concerns about rising labour costs because of the new £7.20 an hour wage rate from April and plans for an apprenticeship levy.

Costa Coffee and Premier Inn owner Whitbread has already said it cannot rule out price rises as it looks to offset the higher wage bill.

Richard Hyman, who has analysed the retail sector for more than 30 years, said 2015 had been the toughest year for retailers he had ever seen.

His comment came as retailer Games Digital became an early Christmas casualty on the high street as it warned over profits after being hit by weaker-than-expected sales of computer games.

Games Digital said that "recent trends and disappointing sales since the start of school Christmas holidays", are set to see half-year underlying earnings fall to around £30 million - a drop of 30% on a year earlier.

Mr Hyman said: "Right now 72% of the high street is on sale. I've never seen anything remotely like it.

"There are too many retailers with too many shops chasing not enough spend."

He said Black Friday in the UK was a "bonkers idea", explaining: "After a year of relentless discounting, retailers said to consumers 'Here's another discount'. No wonder people ignored it."

He added: "All this sounds great for consumers and on the face of it, it is. However on a more nuanced level it's not good for retailers or consumers because if somebody buys something today they're not confident it's not going to be cheaper tomorrow.

"It's eroding trust and retail is losing out."

Mr Hyman said the national living wage would also place pressure on retailers, saying: "Normally retailers would pass on some of that cost to customers but they can't. The environment won't let them."

"The bottom line is that there's going to be a shake-up in 2016. The market isn't big enough to support everyone. We need to see some retailers going and taking their capacity with them."