Retailers should prepare for sustained online demand
The BRC Retail Index shows retail sales increased 6.1% on a like-for-like basis in September when compared to a year earlier.
This figure excludes stores which were closed temporarily, but includes online purchases.
On a total basis, sales were up 5.6% in September against a decline of 0.6% in September 2019. This represents the highest growth since December 2009, excluding Easter distortions.
Looking at online channels in more detail, the latest figures from the IMRG Capgemini Online Retail Sales Index (the primary performance indicator for the UK's online retail market) shows ecommerce grew 42% year-on-year in September. This is well above the 12-month average of 26%, but down on the six-month average of 45%.
The greatest uplift in online sales was recorded by multichannel retailers, which enjoyed 63% growth compared to 19.6% among pure plays. With restrictions being reintroduced the attractiveness of home shopping is unlikely to fade going into the festive season. One potential issue, however, is whether there’s sufficient logistical capacity to cope with sustained high demand, which could lead to delivery delays or lengthy queues for store collections.
Coping with currency complexity
The ability to meet this demand and manage supply chains effectively will be critical over the next quarter, while the uncertain state of Brexit negotiations adds further complexity.
For wholesalers that are exposed to imports and exports, picking a path through these uncertainties is a significant challenge. While international trade continues to offer rewarding opportunities, the profitability of such trade can be undermined by an unanticipated move in foreign exchange rates. If the pound falls, the cost of imports is likely to be higher than expected, putting margins under further pressure. Concern in the sector over ongoing currency volatility has the potential to act as an impediment to growth.
Our most recent ‘Views From Industry’ webinar was Wholesale - managing margins during a period of volatility.
In it our industry partner, Retail Economics, and our Risk Solutions group discuss how businesses can manage margins during a period of uncertainty. With peak trading seasons for Christmas and Black Friday coming up, our foreign exchange solutions can mitigate currency risk and protect profit margins.
Bought options contracts provide certainty against adverse currency movements and potentially enable wholesalers to benefit if rates move in their favour. Swaps contracts, meanwhile, provide further means with which to manage timing risk.
There are no one-size-fits-all options. Wholesalers will typically need specialist advice to pick the right option for their businesses, mitigating currency risk in a way that reflects the profile of their international exposure.
Further information can be found in our insight article or by listening to the webinar recording
Trade Barometer insight
Our latest Trade Barometer annual report, published at the start of October, shows that wholesale and retail businesses are currently most active in the European Union (EU) (83%), followed by North America (64%) and non-EU Europe (55%).
In terms of where these companies see the most growth over the next 12 months, aside from EU markets such as France and Germany, businesses recognise opportunities in North America, Greater China, Japan and South Korea and Oceania. When asked about the actual and potential impact of the pandemic, wholesalers and retailers are most concerned about supply chain disruption (47%), lack of domestic customer demand (34%) and the need to rethink their business model (29%) over the next 12 months.
Meanwhile, two-thirds of wholesalers and retailers (66%) say the impact of coronavirus on demand will be a key factor in their ability to grow over the next three years.
To discuss how we can help your business please contact Sukh Nat on sukhjeeven.nat@santander.co.uk