google ads uk
Information Centre
Categories
Archive

UK Retail Industry Report 2016

UK retail industry

2016 was a successful and exciting year for the UK retail industry. Having thoroughly recovered from the low point of the 2008 recession and its lingering after-effects in the following years, the industry has since grown from strength to strength, expanding into unprecedented levels of income and product diversity. A wider range of retail products is available to British consumers than ever before, and they are more than happy to purchase them; while the retail industry is still dominated by supermarkets, it is increasingly possible to generate substantial turnover in industries as diverse as cosmetics or video games. At the forefront of trends affecting the retail industry is technological innovation: e-commerce, online retail and alternatives to physical media are posing substantial obstacles to traditional brick-and-mortar shops, and yet both revenue and consumer surveys indicate that there is still a substantial market for customers who prefer not to do their shopping in cyberspace. In addition to this, political factors and the values held by consumers are highly likely to have a noticeable impact on the industry in the coming months and years. All of these various factors mean a great deal for the UK retail franchise industry, as shall be discussed below.

Retail trends: an overview

To begin with, just how big is the UK’s retail industry? Where do British people most like to shop, and what sorts of things do they buy? Consider the following facts and figures:

  • There are 192,000 VAT-registered retailers in the UK, which collectively operate 290,315 retail outlets
  • The British retail sector employs over 3 million people, of which 52% are female and almost a third of which are under 25
  • In 2016, the UK retail industry accrued a whopping £358 billion in sales, accounting for 5% of the UK’s total GDP, and which represents an increase of £37 billion over the previous year
  • After an extended recovery period owing to the aforementioned recession, the UK retail industry’s monetary worth has been on a steady upward trend since 2013, increasing in value by 5.1%
  • The retail industry is dominated by supermarkets: the four biggest retailers in the country are Tesco, Sainsbury’s, Wal-Mart and Morrison’s. A close second is department stores, such asJohn Lewis or Marks & Spencer.

Retail is a popular sector for franchising also: dozens of retail franchises are registered with the British Franchise Association (bfa), and several retail franchises are currently advertising with us here at Franchise Direct, including Speaking Roses, Card Connection and Mr Arkwright's Tool Emporium. Below, we shall examine some of the most prominent trends affecting the retail industry at present and in the near future.

Online shopping vs. physical shops

The importance of online shopping to the UK retail industry is almost impossible to overstate. The service has undergone incredibly dramatic growth in the past decade and a half, from humble beginnings of a mere £1.8 billion in revenue in 2000, to a whopping £35.3 billion in 2013, and this upward trend is continuing to climb ever higher, with online retail making up 16.8% of the total retail share in 2016. Online shopping has become not merely bigger but broader; where once it was confined to bookselling and similar luxury items, now even supermarkets routinely offer the service. In some cases, such as entertainment media, no physical products are sold at all anymore. Naturally, the meteoric ascent of online shopping has led many commentators to reasonably pose the question – in a world in which kitchen fridges will soon be able to order the weekly groceries automatically, is there even a place for traditional brick-and-mortar supermarkets anymore, never mind high street shops? In the UK at least, the answer seems to be a resounding yes. In 2013, 72% of respondents in a British survey reported purchasing items in-store at least once a month, more than 37% said they found it more enjoyable to browse in-store than online (with 31.5% expressing no preference), and nearly 35% (the largest group) predicted that online shopping would be equally popular as high-street shoppingin the near future. Whatever uncertainties may be facing the British retail industry, it looks like corporeal shops will be sticking around for the time being at least.

Brexit

As of March 2017, any informed reader is likely exhausted of reading about the potential impact of Brexit upon a given economic sector, but it remains the case that the UK’s unexpected vote to leave the EU in June of last year has massive and far-reaching implications across any number of industries worldwide. The UK’s own retail industry is no exception. The value of the pound sterling initially dipped significantly immediately after the referendum result, but after its recovery many anticipated that the domestic retail industry would be largely unaffected; the reality is not quite so clear-cut. Clothes retailers such as Next are anticipating significant price increases in many of their products to maintain profit margins, with the price of shirts and skirts to increase by as much as 5%. At the same time, many are anticipating staff layoffs in supermarkets and department stores, as companies endeavour to maximise productivity and minimize losses. For British retailers selling their products online, prohibitively large tariffs and taxation are likely to price them out of many overseas markets, unless the UK resolves to remain within the European Economic Area. Despite commentators anticipating an increase in tourism following the pound’s devaluation and consequently an increase inretail revenues, tourism to the UK has actually significantly decreased following the referendum, which will likely affect retail revenue, especially during holiday seasons. Before article 50 is triggered, the reality of the situation is that the future of the retail industry, as with numerous other economic sectors, is mired in uncertainty and doubt.

Growth sectors

2016 was a particularly successful year for several discrete retail sectors. Below, we shall discuss which sectors are showing the most prominent growth, the underlying causes of this growth, and the outlook for the future.

Video games

One of the retail sectors which saw the most growth between 2015 and 2016 was video games. This should come as no surprise to any keen-eyed observer, as in recent years video games have grown into one of the biggest entertainment sectors in the world (valued at $99.6 billion in 2016), and are by some estimates even larger than comparable sectors such as film or television. In the UK, the video game sector was valued at £4.9 billion in 2015, on an upward trend since 2010. The video game sector is highly diverse, encompassing traditional computer games played on desktop computers, home-based video game consoles, handheld video game consoles, and the recently successful mobile games sector. The UK is home to several retail franchises which sell video games, such as HMV, Virgin Megastore or CeX.

Despite the growth of the sector, many commentators foresaw a decline in brick-and-mortar video game shops this decade, as physical media became less popular than digital downloads and online games; the statistics bear this prediction out, as boxed software revenue declined from £1.4 billion in 2011 to £900 million in 2015. However, paradoxically, some brick-and-mortar video game shops have seen growth in the same period, owing to the popularity of video game reselling. Selling games second-hand is an economic sector which is entirely domestic, and which is hence unlikely to be unduly influenced by the impact of Brexit. The biggest success story in the video game reselling sector is the aforementioned CeX, a retail franchise which buys and sells second-hand video games, consoles and related paraphernalia, and which currently operates in ten countries, having licensed dozens of franchisees. Moreover, video games are sufficiently mainstream that they are no longer seen as the sort of product only available in specialist shops, and are increasingly commonly available in mainstream retailers such as Tesco, Argos or Amazon (the Amazon marketplace likewise allows users to sell games second-hand). This all suggests a very promising outlook for the various economic sectors in the video game industry.

Health, beauty and cosmetics

The UK health and beauty industry was the fastest-growing industry in 2016, its revenue increasing by 5.7% over the previous year; 2016 also marked the first year in which the UK beauty industry topped £4 billion. Three of the top European beauty and cosmetics franchise companies originated in the UK: The Body Shop, a subsidiary of L’Oreal, which sells hair and beauty products, fragrances, body washes etc.; Lush Cosmetics, which offers a similar range of products to The Body Shop and emphasises the distinctive aromas and scents of their products; and Toni & Guy, an upmarket hairdressing salon franchise which also sells haircare products and eyewear.

Commentators have largely attributed the recent success of British health and beauty companies to two main factors: the increasing popularity of so-called “premium” beauty products (which accounted for £2.4 billion of the UK industry’s value in 2016), and the growing popularity of, as mentioned above, online shopping, which allows British cosmetics companies to more easily sell their products overseas, thereby growing entirely new markets. In the coming years, many commentators are also anticipating an increased consumer focus on environmental responsibility and organic production in the cosmetics they purchase. In this regard, Lush Cosmetics are far ahead of the curve: all of their products are friendly to vegetarians, and they prominently advertise that they do not stock products from companies which use animal testing. The Body Shop, meanwhile, place a heavy emphasis on environmental friendliness, under the slogan “Enrich not Exploit”. As also mentioned above and as with the majority of economic sectors in the UK, Brexit has placed the future of the UK cosmetics industry in doubt. It is uncertain, for example, whether or not the UK will remain part of the European Free Trade Association, which would have significant effects on the cosmetics industry, and especially its ability to do business with customers overseas. As of March 2017, these questions remain very much open.

Jewellery

Jewellery shops were another prominent sector in the retail industry which saw growth in 2016. The sector has been steadily growing since the low of the beginning of the recession, from £5 billion turnover in 2008 to £7.3 billion in 2014. This trend continued into last year, with sales per week increasing by 7% from 2015 to 2016. However, this growth may not continue indefinitely, as there appears to be something of a generation gap in purchases of certain kinds of jewellery, specifically diamonds. In 2015, sales of diamonds fell by two per cent, the first time they decreased in six years, and many commentators are attributing this trend to a perceived lack of interest among Millennials for diamonds, perhaps due to their reputation and connotations having been sullied due to increasing awareness of the unethical conditions in which they are mined and produced. Hence, just as with the cosmetics industry, the jewellery industry will need to more prominently advertise the ethical standards it adheres to; Kashmira Gander writes that “To connect with [Millennials], firms need to consider new values such as ethical sourcing, value for money and sustainability.” Aside from this, the British jewellery industry is achieving just success with online purchasing as are other sectors in the retail industry, with numerous online retailers having been founded in recent years.

Summary

The UK retail industry is at a crossroads as we continue into 2017; although recent years have been successful and promising for the coming years, the future is still as uncertain as ever. The industry will have to grapple with a diverse range of changing factors, such as technological development and innovation, the political climate in which it operates, and the changing ethical values of its customers. But the ongoing growth in a broad sweep of different economic sectors indicate that the industry is more than capable and willing to rise to the challenge.

For more information on retail franchises, see our retail franchise opportunities page.

You have saved info requests

Complete Your Request