Market review

Global trends

With an uncertain global economic backdrop, the retail market not only faces the same uncertainties but also the knock-on effect of rising input costs and fragile consumer confidence. Coupled with an increasingly competitive retail market, the ability to act with agility and continue to innovate will be key to our success.

UK demographic

The UK has an ageing population, with ONS figures showing a significant rise of the 65+ population, by 21%, over the past ten years. With people also becoming larger, as evidenced by rising obesity levels, our size and age inclusive approach are important differentiators which benefit from these population trends.

Financial services – consumer credit

We see UK consumers continuing to participate in higher levels of unsecured credit, a supportive backdrop given our many years of experience in this sector. We continue to monitor consumers’ demand for payment innovations and ensure that we incorporate FinTech developments when suitable.

Macro-economic trends

The global economic backdrop is uncertain, with recent volatility, particularly in the percentage drop in sterling following the EU referendum.

Trends

The uncertainty following the referendum has led to consumer confidence at lower levels than in the past few years. We expect shoppers to continue to remain cautious this year.

The depreciation of sterling since the EU referendum means that FX rates represent a significant input cost headwind. Inflation is also expected to increase this year, putting further pressure on our costs.

How we are responding

  • We hedge our dollar purchases exposure, allowing us to delay the impact of a weaker sterling rate, and giving us more certainty over input costs.
  • We aim to mitigate input costs and inflation as much as possible, working closely with our suppliers and moving supply nearer to the UK in some cases.

Opportunities for growth

We are planning to absorb or mitigate input cost increases, as opposed to passing these on to our customers, as we believe that this stance will allow us to gain further market share and underpin future sustainable profitable growth. Our international business provides a small natural hedge which we aim to grow in the future.

Retail trends

Consumers are increasingly shifting spend away from retail purchases and towards leisure activities.

Trends

Over the last 12 months there has been a shift in spending patterns away from the clothing and footwear sector and into the hospitality and entertainment sectors. Against this backdrop we work hard to grow loyalty and offer our customers a great choice of products. Within the retail sector itself, health and beauty tops the sector as the fastest growing according to the BRC.

How we are responding

  • Widening share of basket by continually improving both our homewares and our health and beauty offering.
  • Continuing to invest in great value products.
  • Continuing to invest in our financial services offering, to allow customers to spread the cost of their purchases over time.

Opportunities for growth

Our customer loyalty rates continue to be strong, and we work hard to ensure our customers have a great shopping experience with us. Our new Financial Services system will allow us to offer customers a greater range of products, which should help us to increase share of spending and generate incremental income.

Online trends

Shopping globally is increasingly online; the BRC estimates that over 20% of all non-food retail spending now takes place online.

Trends

Online penetration is predicted to grow from 15.7% in 2017 to 18.4% in 2022, with the clothing and footwear sector set to grow from 25.6% of online retail share in 2017 to 29.4% in 2022 according to the latest figures from GlobalData. We are in a strong position to benefit from this trend given our online exposure and our lack of a significant store estate.

How we are responding

  • Continuing to innovate and win share online.
  • Our new web platform will further improve our online trading agility.
  • Continuous improvements to customer experience, for example through personalisation and app development.

Opportunities for growth

As an online retailer, we will continue to make improvements to win more share online and to further improve the customer experience.