Industry issues

Key issues affecting companies in the retail and consumer goods sectors include:

Price deflation versus rising costs

Price deflation is having a dramatic impact on the UK retail and consumer goods sectors. The fall in prices has been driven by greater overseas sourcing, improved technology and the growth of supermarkets and discount stores. Against this backdrop, companies are experiencing rising levels of cost inflation. In short, profits are being squeezed.

M&A expansion and consolidation

Many UK retailers have changed hands in the last few years. UK retailers under stress have attracted investment by private equity houses in particular and the growth of value retailing has gained investor attention. Retailers seeking to expand internationally face the difficulties imposed by very different retail markets. Consolidation is occurring across the consumer packaged goods sector, especially in food processing, where a number of publicly quoted companies continue to under-perform.

Supply chain management and stock control

Supply chain management is becoming ever more complex. Shrinkage and fraud remain key stock control issue for retailers. Improving end-to-end tracking of ingredients and chain of custody through new technologies such as RFID (Radio Frequency Identification Device) is a challenge for the industry.

Sourcing overseas and CSR

Retail and consumer companies must fully consider the risks and rewards of sourcing from and investing in the emerging markets such as China and the Far East and Eastern Europe. In response to a heightened focus from a variety of stakeholders on how businesses manage social, ethical and environmental risks throughout their supply chains, companies are looking closer at their relating Corporate Social Responsibility (CSR) practices.

Accounting, reporting & regulation

Listed retail and consumer goods companies are currently adopting the changes brought about by International Financial Reporting Standards (IFRS). Concurrently, companies are reviewing their existing financial and non-financial reporting in order to identify those key performance indicators for inclusion in the Business Review. Due to stakeholder demands and the resultant Sarbanes-Oxley legislation, the retail & consumer industry is also experiencing heightened regulatory pressures.

Consumer and demographic trends

Most retail and consumer goods companies have reacted swiftly to address the changes brought about the domination of the internet and new consumer spending habits, as online retailing competes headlong with the high street. Companies are also reacting to the polarisation of buying behaviours from 'value' shopping, particularly in clothing, to high-end luxury purchases such as in technology and furniture.

Human resources issues

Retail and consumer goods companies are dealing with pension scheme deficits, executive reward and, given the relatively high levels of staff turnover, the issues of recruitment, staff retention and skills. As employees represent a significant cost to their business, employers are increasingly looking at innovative methods to reduce this cost.

Tax issues

Key tax issues for retail and consumer goods companies span both direct and indirect taxes (eg VAT and excise duties), and other areas such as environmental and property taxes. Topical HR tax issues are around expatriate taxes, remuneration, employment cost reduction, share schemes and pensions. Increasing M&A activity, raises tax issues around cross-border transactions and supply chain management. The increasing onus of compliance, risk and CSR also presents new tax challenges. Companies can now give a fair indication of the total tax contribution they make to society by assessing and reporting the business taxes borne (eg corporation tax), as well as those collected on behalf of the Government (eg NICs).