By Daniel Hunter

Retailers are in for another tough year of trading, as austerity measures and uncertainty hit UK consumer confidence, according to the KPMG/Ipsos Retail Think Tank (RTT).

The RTT members believe that another year of low growth will see consumers remain reluctant to part with their cash. Retailers will have to develop innovative initiatives in order to drive sales.

“Austerity Britain is here to stay and 2013 will feel remarkably like 2012," David McCorquodale, Head of Retail at KPMG, said.

"The lack of economic growth and shaky consumer confidence will result in yet another year of deferred discretionary spend, especially for retailers selling big ticket items.”

The RTT members expect the impact of the economy on trading conditions and consumers’ disposable income levels to remain the key challenge facing the retail sector in 2013.

Vicky Redwood, Chief UK Economist at Capital Economics, said: “Real pay is likely to fall further this year, with inflation continuing to outpace pay growth. Although the Autumn Statement contained a few sweeteners for households, a number of cuts already announced are still set to go ahead this year. Together, these will knock 0.8% off households’ incomes in 2013. And public sector employment is likely to fall further.”

Martin Hayward, Founder of Hayward Strategy and Futures, added: “2013 will continue to be a daily battle for share of wallet, and deals, offers, coupons, and cash-back will remain a key fixture within marketing plans.”

In this low growth environment retailers must keep a keen eye on costs and build a strong relationship with their financiers. David McCorquodale of KPMG said: “2013 will bring increased overheads to retailers’ doors, including enhanced pension obligations and rising business rates, which they will be unable to pass on to a consumer already reluctant to part with their cash. These trading conditions will play greatly to the relationship between the retailers and their financiers and an open dialogue between retailer, bank and credit insurer will be vital to survival.”

The RTT warns that an undersupply of large format prime retail space on the market could also potentially curb retailers’ expansion plans in 2013. Mark Teale, Head of Retail Research at CBRE, said: “Speculative development activity is at a record low. Instead developers are undertaking small extensions to established schemes which have proved themselves to be successful.

“With little new space coming on stream, primary shortages are becoming more and more acute. The dearth of speculative development has left large store expansion plans in tatters.”

Despite the gloomy trading conditions the RTT believes that opportunities for growth do exist. Tim Denison, Director of Retail Intelligence at Ipsos said: “I expect retailers to find their feet and spawn new initiatives this year. Their success will be dependent largely on what they make of it themselves. Perhaps most exciting of all will be to see how retailers connect bricks, click and taps to create a truly omni-channel world. Well-founded investment could breathe new life into down-trodden retail phrases such as ‘customer service’ and ‘the shopping experience’.”

The RTT members believe retailers must identify pockets of growth and invest in them, but warn that any investment must be strategic and linked to genuine opportunities in the market. The members identified multichannel retailing as a key opportunity for retailers, especially as consumer adoption of technology continues apace. Retail Analyst Nick Bubb said that 2012’s sales had demonstrated the benefits multichannel investment could bring: “In 2012 smartphones and tablet PC’s became the “must-have” gadgets for the consumer and in turn became the devices that consumers increasingly used to order online, thus propelling astonishing growth for the best multi-channel retailers, like John Lewis.”

Neil Saunders, Managing Director of Conlumino, added that the advancement of technology will present new ways for retailers to enhance their retail offer in 2013 and drive sales. He said: “Technology is an area of real growth and we can expect to see exciting innovations around payment technologies, augmented reality and personalisation. All of these things will provide a boost in 2013 and will help retailers to be more responsive to customers and, consequently, drive up things like conversion rates and transaction values.”

The Group also noted that some sectors are in a better position than they were 12 months ago. Nick Bubb noted that while the food sector had struggled in 2012 due to over capacity, the structural balance had improved for the general retail sector. He said: “Although the overall outcome in terms of like for like sales growth has been pretty flat, one can also see in the robust stockmarket performance of the general retail sector a sense that structural issues have been in better balance than in food retailing. With capacity exiting several sub-sectors, and new shopping centre developments drying up, those retailers left standing have been able to enjoy the insatiable boom in online shopping.”

The RTT also expects to see retailers seek out growth overseas in an effort to supplement weaker domestic demand. Richard Lowe, Head of Retail and Wholesale at Barclays, said: “The borderless retail landscape created by e-commerce means that it is easier than ever before for retailers of all shapes and sizes to tap into new markets. By adopting online strategies, retailers can test local appetite for brands and products without having the associated overheads of opening physical stores.”

Fiscal policy could alter the course of 2013 and have a knock on effect on the overall trading environment. Vicky Redwood of Capital Economics said: “While we predict 2013 will be more of the same, these assumptions are based on the implementation of the plan for austerity; some events could alter the course of the year. The arrival of a new Governor of the Bank of England could herald a significant change in monetary policy and strategy and prove a real game changer. Likewise if the UK enters a triple dip recession then the pressure on the Government will be unbearable.”

Martin Hayward, of Hayward Strategy and Futures, concluded: “Despite the harsh economic environment, there is still plenty of consumer spend to fight for and most retailers will survive intact, leaving those who don’t understand the evolving price, value and service equation to flounder.”

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