Consumers see more retail closures as being inevitable

Results from the survey conducted on-line between 30-31 May 2009 and based on a sample of 1200 respondents across Australia, Canada, the United Kingdom and the United States, reveal 78% of respondents across the four countries feel “lots more shops will close down”, with British shoppers being the most pessimistic with 89% of respondents mostly agreeing with this statement.

Conversely, just under 15% of respondents across the four countries feel more new shops will open over the course of the recession.

“These findings are profoundly worrying for the retail industry and also for the commercial property sector” says Datamonitor's Global Director of Consulting for Consumer Markets, Neil Hendry. “As we know consumer spending is under pressure globally, and the fact that consumers see more retail stores and chains closing would suggest they are pessimistic about their ability to be able to go out and spend in the short to medium term.”

Interesting dynamic

The survey results also point to a potentially bigger shift in consumer retail spending behaviours. 45% of respondents claim they would start to buy more from local stores in order to support local businesses, and as a result 56% of respondents felt their local shopping malls and high streets would be unaffected by mass retail closures. “This is an interesting dynamic” continues Hendry. “The lack of diversity in shopping malls and high streets across Australia, Canada, the UK and the USA, has increasingly been a source of frustration for consumers, and it would appear that the economic downturn has created an environment where a sense of community can be shown through support of local businesses. This trend is also underpinned by increasing awareness of environmental and local sourcing issues amongst consumers, which combined with a reduction in car usage, particularly in the USA, means that the future viability of the “city fringe” retail park or shopping mall may be called into question.”

Hardly surprisingly, across all countries, consumers believe the weaker and less popular retail stores will not be able to withstand the recession, but there is a significant difference across countries about how stores will deal with the effects of the downturn in order to ensure their survival. In the USA for instance, 59% of consumers believe stores will open for less time in order to control staffing costs, an opinion shared by only 20% of Australians. However, in the UK 58% of consumers believe stores will open for longer in order to maximise trading opportunities, compared to only 26% of Canadians.

The key equation

Hendry continues: “Obviously, there are differences across these four economies already in terms of opening hours, and also in terms of retail cost structures. However, what the above would indicate in the USA is a reduction in over-time hours for staff, and possibly retrenchment of part-time jobs in retail, which could have a particularly adverse effect on working families and also students, who often rely on retail work in order to support their incomes. In the UK, with lease payments due quarterly in advance, retailers will obviously be looking to maximise sales. The key equation will therefore be whether extra staff and overhead costs will be covered by improved cash flow or the margins achieved on incremental sales.”

Hendry concludes “the most worrying thing from an overall economic perspective is that consumers are pessimistic about the retail sector - indicating they are also pessimistic about their own ability to spend. This means any consumer led economic recovery is going to be some way off, particularly as unemployment rates look set to continue to rise significantly over the next 18 months. As such the outlook for commercial and retail property will remain very weak, particularly with regards to portfolios that are not well served by public transport, and will ensure that default rates amongst the major banking groups exposed to commercial property will potentially also increase - placing even greater pressure on fragile lending markets.”

Notes:

Datamonitor's Recession & Recovery Research Programme provides organisations with an up-to-date view on the effects of the economic downturn on consumers and business across 19 countries. The findings contained in this press release are based on a survey conducted on-line over the weekend of May 30th and 31st, based on a sample of 1200 respondents across Australia, Canada, the United Kingdom and the United States. For further information here.

Article courtesy of Datamonitor