Rising oil costs will hit retail hard

Verdict Consulting warns that UK retail could face bankruptcies and job losses over the next ten years as a number of potential risks drive up costs and reduce consumer demand.

Research highlights that the retail industry will come under pressure as factors, including tighter environmental regulation, the rising price of oil, more expensive supply chains and a reshaping of economic fundamentals, combine to push up inflation. Verdict predicts that inflation could reach 9% over the coming decade.

However, although costs are rising, consumers are spending less because they are also being hit by increases. Verdict says that, compared to last year, discretionary income – the amount customers have to spend after taxes, food, bills and other expenses – has dropped by about 20%. The fall is set to continue.

The research identified the cost of oil as a significant factor because almost all areas of retail, such as the manufacture and transportation of goods, product packaging and heating and lighting stores, are reliant on oil. The price of oil is expected to rise by $50 a barrel in two years.

“The high oil prices we are experiencing are here for the longer term,” says Neil Saunders, consulting director at Verdict Research. “They are driven by a relatively limited and dwindling supply combined with massive increases in demand. Retailers are going to have to get used to that reality and the associated increase in costs it brings.”

The research was carried out by Verdict Consulting for ActiveResilience, a division of Catalysts Ltd set up to assist all type of organisations counter risks.

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