6th November 2013
The UK retail sector is hitting its stride once again, as ONS figures showed retail sales rising 0.6% in September after an unexpected dip in August. However, with real incomes still in decline, much of the increase in spending is being driven by higher household borrowing. This is an unstable situation for the UK retail sector, with a simple switch in confidence likely to see consumers reining in spending. But there is hope for High Street retailers from another source – emerging markets.
Investment journalist Cherry Reynard reports.
Ian Stewart, Deloitte’s Chief Economist in the UK, says that rising equity and house prices, plus improving economic growth, have given consumers the confidence to save less. Consumer confidence has risen at the fastest rate in almost 30 years to reach the highest levels in seven years. While some of this has been driven by money released from the payment protection insurance misselling, consumers have also been buying more on credit. Stewart says: “The share of new cars being sold on credit reached a record high of 75% in September. More than £11 billion of credit has been advanced to new car buyers over the last year with an average loan of £14,622. Unsecured lending, which is typically used to finance consumer spending, is rising at rates last seen in early 2008. Meanwhile, the number of mortgage approvals made by banks and building societies has risen by more than 25% in the last year.”
This is unstable and could be derailed by anything that dents consumer confidence – a slip in the housing market, higher unemployment, a pullback in the economy. However, new research from the British Retail Consortium and Google says that ‘brand Britain’ is increasingly finding favour overseas, particularly in emerging markets. It found that total search volumes from overseas consumers searching UK retailers increased by 23% in the third quarter compared with the previous year, up from 16% in the previous quarter.
In this piece for the Retail Technology website Geoffrey Barraclough, head of corporate propositions at payment services provider WorldPay, suggests that this international attention may yet be the saviour of the High Street: “In the wake of recent poor news for the High Street from Mary Portas and Bill Grimsey, the rising influx of international shoppers provides enormous potential for UK retailers, as global shoppers spend around four times more than locals at High Street retailers,”
However, history is littered with failed attempts to penetrate emerging markets. Brand Britain does not have universal appeal, retailers have to pick their market and their approach with care. Tesco has been the most recent example of this phenomenon as the BBC reported. It announced a joint venture with a domestic retailer in China at the start of October after struggling to make money in the region. The BRC/Google report showed that searches by the Chinese fell by 9% over the same period. A number of the luxury goods names have also found that the Chinese market has not been as profitable as they had hoped, largely due to the recent slowdown in growth.
This is not to say that China doesn’t have opportunities, and the economy is now picking up once again, but the beneficiaries may have changed. Initially luxury goods benefited most from China’s new found wealth, but this is democratising as wages increases in China spread wealth. Tom Slater, manager of the Scottish Mortgage Investment trust, says: “We have recently adopted a change of emphasis in our approach to the Chinese consumer. With the new government, there is a determination to address some of the wealth disparity that has developed and to encourage consumption growth in the mass market. Indetex is now a larger holding in the trust than luxury goods names such as Gucci. China is the second largest market for Indetex, owner of Zara, already”.
Also, UK retailers have been benefited from ‘Golden Week’. This was the first week in October when Chinese shoppers flock to the UK to snap up branded goods that can be around 30% cheaper than they pay domestically as Retail Digital reports. Worldpay says that it processed a record 70,000 credit card transactions from Chinese consumers during the week, up from 58,000 last year.
The strongest growth for British goods, however, is being seen from the Russian market. The survey found the number of Russian shoppers looking for UK retailers rose 54%. High street stalwarts such as Ted Baker are now expanding into Moscow as part of an international programme focusing on ‘super cities’ around the world. It is also launching a new website, which will allow it to grow its international business online as the Telegraph reported. The survey also found that South Korea has been an important market for British goods.
Through the growth of mobile telephony retailers are increasingly able to harness a global rather than single country market place. It may not save the British High Street, but it is great news for the UK’s retailers.