Retailers suffer as consumers see falling prices and bargains as the new normal

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Consumers have enjoyed yet another year of falling prices and bargains as the new normal, but their good fortune has seen retailers suffer their toughest year, according to experts.

With Brexit looming and cost pressures such as the National Living Wage, apprenticeship levies, rising rents and business rates, 2016 may turn out to have been "a picnic" compared with the year ahead.

Richard Hyman, who has analysed the retail sector for more than 30 years, said: "It has been extraordinarily tough without any impact from Brexit at all. For the last two and a half years, we've had price deflation in virtually every sector.

"In 2016, on average more than 60% of UK retailers have been on sale. I've never seen a market like this. Sales used to be used to clear stock. That's a thing of the past. Now there is a permanent sale.

"This year will be a picnic compared to next year."

While consumers may be fretting about the prospect of higher prices next year due to higher import costs caused by the pound's slump, they are still paying less for their groceries than a year ago in a continuing trend thanks largely to the ongoing supermarket price war.

Retailers know their customers now expect constant discounts, which have become the only way of attracting their attention in a ruthlessly competitive market.

The landscape is such that even major sales events such as Black Friday and Cyber Monday are failing to draw previous numbers of shoppers, who now consider money off to be the norm.

British Retail Consortium chief executive Helen Dickinson said the fourth year of falling shop prices suggested shoppers would see ongoing, intense competition between retailers.

She said: "The outlook for 2017 is tough.

"We have a triple whammy of cost pressures - inflation coming through, an unreformed business rate system, another year of uplift in the National Living Wage and apprenticeship levies - and all of these at the same time as a market that's not growing very quickly.

"But we know they're a resilient and enterprising bunch and there will be a lot of businesses that rise to the environment really well."

The CBI's principal economist Alpesh Paleja said: "While we should continue to see decent growth in the near-term, we expect the headwinds for retailers to strengthen during 2017, particularly as inflation picks up.

"This will squeeze households' pay packets, which could lead to a shift in consumption patterns. We might see fewer purchases of big ticket items and customers buying more value brands.

"This would create winners and losers across the retail landscape."