In the Spring Budget, the chancellor announced that the UK is to avoid a technical recession this year and introduced a range of measures to support individuals and businesses against economic uncertainty. However, despite pleas from retailers and industry bodies, it failed to re-introduce the VAT Retail Export Scheme (tax-free shopping for international visitors). The British Retail Consortium called for the scheme to be reinstated to boost tourist spending in stores. Shopping accounts for 46% of all tourist spending, and it is suggested that reintroducing tax-free shopping would have led to an extra £3 billion being spent by overseas visitors on shopping, hotels, restaurants and attractions.
Retailers have expressed disappointment at the missed opportunity for retail growth and lack of support for the industry. Dee Corsi, CEO of New West End Company (which represents 600 businesses in London’s West End), said the chancellor had also missed an opportunity to review Sunday trading hours, which are more restrictive than other tourist destinations such as New York, Paris and Dubai. London’s West End is ‘65% busier on Sundays in terms of footfall’, meaning it is likely to be missing out on additional sales.
Helen Dickinson, chief executive of the British Retail Consortium, said the chancellor has failed to address the issues with the apprenticeship levy. £3.5 billion has been wasted in unused levy funds, and the government should have allowed businesses to use the funds for a wider range of skills courses, which would help increase investment in the workforce. She also stated that the business rates system needs reform. Currently, rates must be paid in full whether firms are making a profit or loss, which is often the ‘final nail in the coffin’ for many struggling businesses.
The Federation of Independent Retailers also noted that the hike in tax on alcohol and tobacco was another blow to the retail sector, threatening the existence of smaller businesses as profit margins are narrowed. The wine and whisky industries, in particular, have seen the highest tax increases in 50 years following the most recent Budget.
On a more positive note, the announcement of full expensing of capital expenditure for the next three years may be good news for retail businesses, partially offsetting the corporation tax rate rise from 19% to 25%. Meanwhile, the proposed 12 new UK ‘investment zones’ could accelerate development for the high street and support local growth across the UK, whilst the childcare reforms could help people in returning to work.
After facing a tough few years recovering from the disruption of Covid, the consensus across the retail industry towards the Budget seems to be one of disappointment. The measures have failed to go far enough to support growth and development, with calls for assistance so far going largely unanswered. Although inflation unexpectedly increased to 10.4% last month, it is anticipated to fall more than previously forecast in the near term. The Bank of England nevertheless decided to continue raising interest rates with a further uplift to 4.25%. The outlook for the UK economy therefore remains uncertain and, coupled with the recent turmoil in the banking sector, it remains to be seen the long-term impact on the retail sector.
Burberry Group has announced that current McLaren Group CFO Kate Ferry will join the company later this year, as CFO and executive director. Ms Ferry replaces current CFO Julie Brown, who is moving to GSK plc. The Burberry Group has been undergoing significant management change, with Daniel Lee (former Bottega creative head), starting as chief creative officer in autumn of 2022, and debuting his first collection at London Fashion Week late last month.
CEO Jonathan Akeroyd, also appointed in late 2022, spoke last year about his aims to turn the British fashion house into a ‘£5 billion megabrand’ and restore the brand’s ‘Britishness’ as Britain’s only large luxury label. Burberry’s growth in comparison to its French and Italian rivals, often backed by powerhouses such as LMVH and Kering, has been slow. Its average annual growth rate between 2017 and 2022 was just 1% compared to its conglomerate rivals posting growth rates between 10% and 20%. Burberry’s sales growth in the last quarter fell, attributed to dropping sales in China, compared to an upgraded profit forecast at the same time in 2022.
Bakery chain Greggs plans to open 150 new stores in the UK, and it is not the only budget retailer to plan an expansion in 2023. In January, Poundland announced plans to open dozens of new stores across the UK, while Aldi also is stepping up its search for sites in a planned expansion from 990 to 1200 stores UK-wide.
These value retailers have inevitably benefited from consumers who are increasingly cost-conscious and keen to seek out bargains. For example, in the last year Greggs has seen a 23% increase in sales to £1.5 billion in the three months to 31 December. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, attributes the high street bakery’s success to consumers’ tendency to ‘flock to value’. Some of this has been passed on to staff – in January, Greggs awarded a 10% increase in pay to all staff, while Aldi has offered some staff pay increases of as much as 20%.
However, despite the considerable rise in sales, Greggs saw only a 2% increase in profits last year due to a substantial rise in costs. Spikes in the cost of packaging and ingredients caused by the conflict in Ukraine, as well as high levels of inflation, led to an increase in Greggs’ costs of 9% last year. The bakery predicts a similar increase in the year to come. The Bank of England has predicted that inflation should fall in 2023, but Greggs’ CEO Roisin Currie believes that the number of ‘moving parts’ means a cautious outlook is necessary.
Primark, one of the world’s largest low-cost fashion retailers, has recently announced a series of new initiatives aimed at promoting durability and repair, so that clothes can be ‘loved and worn for longer’. In line with Primark’s long-term sustainability strategy, Primark Cares, this is part of the company’s ambition to become a more circular business.
New initiatives include working with climate action NGO WRAP to establish an industry-wide fashion durability standard, as well as collaborating with environmental charity Hubbub and the University of Leeds to research the relationship between price, durability and consumer behaviour.
Primark is also rolling out repair education to its customers. This follows a pilot in 2022, where Primark hosted 43 free clothing repair workshops for customers and colleagues in the UK and Ireland. Sessions were led by designer and fashion lecturer Lorraine Mitchell and fashion stylist Janina Gruber, and covered basic repair skills, such as sewing buttons and mending tears, as well as lessons in customisation. Following the pilot’s success, repair workshops are being rolled out across Primark’s UK and Irish stores, with the European market expected to join in shortly.
In support of London Repair Week during March 2023, Primark ran an extensive programme of free clothing repair workshops throughout its London stores. It has also developed a new online hub featuring repair tutorials. The easy-to-follow how-to video series equips watchers with the basic skills required to make items last for longer.
This move is part of Primark’s commitment to prolong the life of clothes. Lynne Walker, director of Primark, commented: “We know that many clothes that are discarded may still have plenty of wear left in them and that’s why we want to help people learn new repair skills to be able to sew, fix a button or even customise a piece of clothing and give it a new lease of life.”