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UK retail sector is looking unpredictable, but QBE remains on hand to support

By Jamie Calder
Credit Lines Underwriter

UK retailers face some of the worst market conditions in memory, but QBE remains committed to supporting credit insurance clients in the sector, just as some insurers are pulling back.

Following a disappointing 2018, the New Year brought new hope for the retail sector. Retail sales beat expectations in January, rising 1% having fallen by 0.7% in December, according to the Office for National Statistics (ONS). Retail sales were 4.2% higher in January than a year ago, the biggest annual rise since December 2016.

However, any euphoria from this positive start is likely to be short lived. The retail sector continues to face significant headwinds, not least from the uncertainties of Brexit and the growth in online sales. Few retailers have been unaffected by the weak trading conditions and changes in consumer behaviour, with job losses and store closers now a regular feature.

According to the Centre for Retail Research (CRR), 2018 was the worst year for retailers since the 2008 recession, and 2019 is unlikely to be any better. CRR data shows that 43 major retailers went into administration in 2018, leading to almost 2,600 store closers and 46,000 job losses. In the first two months of this year a further seven retailers have folded, including OddBins, HMV, Hardy Amies and Steamer Trading. According to the Insolvency Service, over 1,200 retailers in all were insolvent in the year to 31 December 2018, an increase of 9% on 2017.

Even on-line retailers are feeling the pinch. The number of online-only retailers going bust has doubled since 2010. Some 246 online only retailers collapsed in 2018, 19% more than 2017 and more than double the 120 online retail insolvencies recorded in 2010, according to accountancy and insolvency practice Price Bailey.

Tellingly, even historically strong performers are looking to shut stores as they pro-actively seek to reduce costs and address profitability. John Lewis announced in January that it will shut its Southsea branch, its first store closure since 2006. Marks & Spencer revealed that it is to close 17 stores in addition to the 38 closures announced 2018. The retailer plans to shut more than 100 stores by 2022 as it aims to generate a third of its sales online.


Brexit is one of the biggest immediate challenges for retailers, hitting them with higher costs and lower demand. The weakened pound has increased the cost of imports while stockpiling and contingency planning is adding to their operating costs. Demand has also waned as Brexit uncertainty has contributed to falling consumer confidence and a stagnating housing market. In January the GfK consumer confidence index fell to its lowest level since the summer of 2013 while house prices fell almost 3% January, according to The Halifax.

Coupled with a slowing of the global economy, Brexit has had a dampening effect. The UK economy grew just 1.4% in 2018, down from 1.8% in 2017 and the slowest growth rate in six years, according to the Office for National Statistics (ONS). Brexit headwinds caused the Bank of England to lower its growth forecast for 2019 to 1.2%, the worst prospects since 2009, with a one-in-four chance of the economy slipping into recession in the second half of this year.


A disorderly Brexit, or prolonged uncertainty over negotiations, could hasten the demise of some retailers. Yet conversely, an agreement that would see the UK leave EU on March 29 or soon after could provide a welcome respite for the retail sector.

In October, Chancellor Philip Hammond said that a Brexit deal should deliver an economic upside that could lead to an upgrade in the UK’s economic growth forecast. Despite the slowing in the UK economy, there are underlying strengths. The labour market has been remarkably robust and unemployment rates are now at the lowest levels since the 1970s. Consumer confidence, while weaker in recent months, has also been surprisingly stable since the referendum in 2016.

A political deal that allays Brexit fears could have an almost immediate positive effect on the retail sector. A potential strengthening of the pound would reduce the cost of imports and ease the burden on business overnight. While a reduction in Brexit uncertainty could see consumer confidence and business investment bounce back, potentially releasing pent up demand.

Consumers might start spending on large items again while the housing market could be revived. While confidence in the housing market is currently at a 20 year low, for example, the outlook for 2019 as a whole is more upbeat, according to the Royal Institution of Chartered Surveyors (RICS). This suggests that some of the near-term pessimism is linked to the lack of clarity around what form of departure the UK might make from the EU in March, the RICS says.

A resolution of Brexit uncertainty could improve the outlook for the retail sector, at least in the short term. Having battened down the hatches, many retailers have cut costs and streamlined their business models. Any increase in demand in the second half of 2019 would come as welcome relief and may help some retailers survive to fight another day. 


Brexit aside, the retail sector is undergoing fundamental change, with changing consumer behaviour and growth in online sales reshaping the high street. According to the ONS, internet sales are now around 20%, twice what they were five years ago. Some high street retailers now sell more online than they do in their stores – online revenues in 2018 outstripped in-store sales at Next for the first time.

As internet sales have risen, some stores have become less profitable. High business rates and rents are also a major challenge. The government has pledged to cut business rates by a third for half a million small retailers, although larger retailers still face steep hikes this year when rates are reviewed in April. However, with high street store closures continuing to rise, the government could be spurred into action – the Treasury Committee in February announced a review of the business rate system.

Behind the headlines

Despite these challenges, there are many positives. Innovative retailers are reinventing the concept of retail and are looking at new business models that balance online sales with stores. One possible view of the future can be seen in the strategy of IKEA. As it seeks to generate on-line sales, the Swedish furniture retailer is opening small high street stores that enable customers to view products and receive advice, using its large stores as logistics centres.

The future retail sector will be more streamlined, with fewer stores, lower labour costs and increased use of technology and automation. M&S, for example, is trialling cashier-less shopping, where shoppers use a smartphone to scan and pay for items up to the value of £30, allowing them to dodge queues during busy periods. Amazon is rolling out its Amazon Go stores, which use cashier-less technology, while AI powered shopping assistants, augmented reality and robotics could enhance customer experience and reduce costs.

Savvy marketing and social media campaigns are also replacing shop window displays. Food chain Greggs struggled to keep up with demand for its vegan sausage rolls after a canny social media campaign during Veganuary, the annual promotion aimed at encouraging plant-based diets.

Credit insurance

Given the uncertain outlook, there could well be a precedent for appetite to ease. However, our consistent underwriting approach through varying cycles of the economy, allows us the flexibility to provide support to the retail sector with ongoing capacity. In fact, the current environment demonstrates the value of the trade credit insurance product and creates an opportunity for specialist credit insurers like QBE.

Your contact

Your contact

Jamie Calder

Jamie Calder

Senior Underwriter (Trade Credit)

Tel: +44 (20) 71054222