Featured sector: Retail

Over the last five years retailers have had to respond to the challenges of both persistently weak consumer expenditure and structural changes to where, how and on what households spend their incomes. These twin challenges have together shaped the pattern of retail construction activity in recent years.

However, retail sales growth has progressively strengthened over the last eighteen months. . Retail sales volumes grew by around 4% during 2014, more than twice the rate seen during the previous year. The positive trend has continued during 2015. The absence of inflation has helped ease that the pressure on consumer’s finances. The UK CPI inflation rate fell to zero in February and March, before dipping into negative territory in April.

ONS recorded a 1.2% rise in retail sales volumes during April, leaving sales volumes 4.7% up on a year ago. This was the 25th consecutive month of year-on-year growth, the longest period of sustained growth since May 2008. The latest CBI Distributive Trades survey indicates that the upward trend continued during May, with 60% of firms reporting that their sales volumes were up on a year ago and only 9% reporting a decline. Most retail sub-sectors reported robust growth in sales volumes including grocers and non-specialised stores, which rebounded from negative showings in the previous month to report strong performances.

Whilst volumes are on the rise, retailers’ turnover and profitability are being squeezed falling prices. This is particularly evident in the grocery sector, where falling food prices, aided by a supermarket price war, have been a key factor behind the recent fall in inflation.

However, there has been also been a long term decline in non-food prices. BRC Neilson report have tracked a progressive decline in non-food prices over the last three years, with prices in May 2.5% down on a year ago.

Accordingly whilst consumer confidence is returning, consumers remain price conscious and cautious about committing to discretionary ‘large-ticket’ purchases: Spending on such items is also often linked to house moves, but the number of mortgage approvals has slipped back since last summer.

Furthermore, the retail sector continues to face challenging structural changes that are expected to limit the support to retail construction activity from the rise in consumer confidence. The current problems and retrenchment faced by the top four supermarkets, until recently a major source of retail construction activity, is testament to shifting pattern of consumer demand.

The underlying value of project starts slipped back 8% last year, although the number of projects starting on site has been on the rise with refurbishment and fit-out projects accounting for an increasing proportion of work in the sector.

Looking ahead larger new build projects will remain in short supply during 2015. This is in large part due to the top four supermarket chains scaling back their investment programmes and redirecting funding towards the convenience store market, which more often entails conversion of existing high street premises. Other high street retailers are also focusing on store re-modelling, driven by high levels of competition and efforts to accommodate click and collect services.

Value of retail projects securing detailed planning

Encouragingly, the improved economic outlook has seen some town centre regeneration schemes being brought back into development. However it will be late 2015 and 2016 before these types of projects begin to have a large impact on overall workloads.

Underlying value of construction projects starting on site. (Excludes individual projects of more than £100 million and framework agreements).