Listed UK retailers’ profits have slumped more than a third in the past 11 years despite a 50 per cent rise in sales, according to new analysis that lays bare the collapse in margins as new entrants upturn the sector.
Sales from food and general retailers rose from £125bn in 2007 to just over £190bn last year, data from The Share Centre show. But pre-tax profits, including exceptional items such as asset impairments, fell from £6.5bn to a little more than £4bn.
“The slide and fall of retail is a story of disruption upsetting a comfortable industry with huge destructive force,” said Richard Stone, chief executive of the investment platform.
The decline differs among food retailers and their high street counterparts.
Established supermarket chains lost market share to discounters Aldi and Lidl after the financial crisis, forcing them to cut prices in response.
That meant an extra £34bn in sales since 2007 brought no improvement in profits, which fell from £3.4bn to £2bn last year. While there has been some recovery in recent years, it seems unlikely that margins will return to their historic levels of 5 per cent or more.
General retailers’ troubles intensified after a 2015 peak in aggregate profitability, as weakening consumer sentiment, rising costs and an accelerating shift to ecommerce eroded the profitability of stores. That in turn has prompted impairments of assets, such as the £320m charge M&S took against its UK store estate last May.
Last year 43 retailers failed, according to the Centre for Retail Research. Debenhams recently announced plans to close at least 22 of its 165 UK stores, while retail tycoon Philip Green’s Arcadia, owner of brands from Topshop to Miss Selfridge, is expected to launch a restructuring in the coming weeks.
“The high street is about three years behind the food merchants in the process of adjusting to their new reality,” said Mr Stone, adding that had they been able to retain the 6.4 per cent margin they made in 2007, general retailers would have made £5.1bn in profit last year rather than the £2.2bn reported.
The drop in profits has hit returns to shareholders. Apart from outliers such as WHSmith and JD Sports, the general and food retail sectors have generated miserable returns over the past decade, according to Bloomberg data. General retailers have underperformed the FTSE All-Share index by 29 percentage points, while food retailers have done so by 83 percentage points — although they have outperformed the index in recent years. Dividends across both sectors have fallen by a fifth.
But the turmoil has been good for consumers. Food prices have risen just 23.4 per cent since the start of 2008, against a 29.8 per cent rise in all items, according to the ONS.
“Effectively we have seen a huge transfer of value from shareholders to customers as store groups have had to keep a lid on prices to keep customers coming through their doors,” Mr Stone said.