Three new challenges facing UK retailers and merchants

2016 has already been a challenging year for most UK retailers and merchants. With the UK economic recovery continuing to be sluggish and patchy and consumer spending levels much lower than expected, retailers are having a tough time of it.

Of course, conditions are far better for builders’ merchants than they were at the height of the recession, but even though we’re several years into the recovery, the sector continues to face new challenges.

#1 The living wage

Many would argue that the implementation of the new National Living Wage is one of the least business-friendly moves made by the current government. It was certainly a surprise when Chancellor George Osborne announced the policy in the first budget of the new parliament.

Now the National Living Wage has been implemented, retailers are facing significant increases in labour costs, with all workers aged 25 or over now entitled to at least £7.20 an hour, compared with the new minimum wage for 21-24 year olds of £6.70. The National Living Wage is set to rise to £9 per hour by 2020, so businesses must brace themselves for another 25% increase.

Absorbing these costs will be difficult for retailers, particularly those who offered wages close to the old minimum wage.

#2 EU referendum uncertainty

The polls show that the result of the upcoming referendum on the UK’s membership of the EU is far from settled. At the time of writing, the Remain campaign appears to have gained an edge over those who want the UK to go it alone, but there’s a sense that the result could still go either way on June 23rd.

If your business exports to the EU, clearly this uncertainty isn’t good for business. It’s almost impossible to make long term business plans if you suddenly face larger tariffs on a chunk of goods you export. Additionally, in some areas high proportions of jobs are reliant on EU funding. The multiplier effect tells us that the loss of jobs leads to lower spending elsewhere in the economy, which could have a knock on effect on businesses. Of course, no-one knows exactly what will happen if the UK votes to leave – but this mere uncertainty is a huge challenge for certain retailers.

#3 Global economic woes

The global economy isn’t in great shape either, with the IMF warning that another downturn could be on the way. Problems with debt in the Eurozone aren’t going away, China’s previously reliable growth has slowed, and its debt is at a record high. There are also major concerns that structural issues in the financial sector that caused the previous recession haven’t been resolved.

All of these factors mean that investors are cautious and confidence is low. The interconnected nature of the economy means that a crash in China or elsewhere would have severe impacts across the globe.

Of course, you can’t easily plan for a recession, but many retailers may postpone expansion or investment given the background of uncertainty.

These political and economic issues may seem insurmountable challenges for small retailers. There’s little an individual business can do to affect government policy or create a stronger economy, but businesses can work to build up their resilience and increase cost visibility in an effort to at least partially shield themselves from the worst of these external shocks.

Struggling with cost visibility? Upgrading your retail management software could help you identify areas to cut costs and improve efficiency.