Retail sales fall to new low

OVER capacity in the retail sector has seen sales fall to their lowest level for eight years.

A survey by Deloitte found that retail sales per foot are now at levels last seen in 2001, and while consumer spending has weakened in the recession, it is the relentless growth in capacity that has dramatically brought returns down. 

Deloitte estimates that the industry has added more than 50 million square feet of space during the past 10 years.  The equivalent of a further 50 million square feet has been added by the massive growth of online shopping.

As a result, retail sales have fallen this year to around £355 per square foot, compared to their 2007 peak of around £385.

Richard Hyman, strategic retail adviser to Deloitte, said: “This level of expansion has until recently been absorbed by a golden period of retail spending growth.  A strong currency and very cheap credit, particularly mortgage equity withdrawal, boosted disposable incomes and produced something of a retail boom.  This period is over, and does not look likely to return for some time. This massively increased capacity is now struggling to produce the returns much of the industry has planned.”

Mr Hyman added the market which is emerging will be characterised by lower sales growth and lower margins.

He said: “Growing saturation will intensify competition.  With so many mouths to feed, many retailers will have to come to terms with a smaller share of what is a finite pie.”

“There will still be excellent returns for retailers with business models flexible enough to deal with change.  Understanding customers and being able to anticipate what they want is critical.   Becoming much more demand driven is the key challenge for the industry.”