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retail Data Studies

UK retail: The state of the nation

By Richard Potter on 11/07/18 15:08
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Richard Potter

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Here at Peak, we’ve found ourselves working with more and more retailers since we launched our AI service back in September 2016. We’ve been at the forefront of AI adoption from that point onwards, yet the technology is yet to go mainstream. So, we decided to do a bit of research of our own looking at the effects of AI on the performance of the UK retail sector...

The results were incredibly revealing. If you only read this intro, then you should at least take away the following:

- Retailers adopting AI are growing 30% faster than the rest

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Gross profits are, on average, a whopping 50% higher at those companies

- The performance gap is so wide that, across the entire sector, we believe that AI can add £27bn to the UK retail sector annually.

These stats are remarkable and show just what an impact AI can have for retail businesses. They are, however, just the tip of the iceberg...

Retail sales are at their highest ever level

With headlines today often dominated by stories about the struggles of many famous high street retailers, it might be surprising to learn that total retail sales across the industry are actually at their highest ever point, with more and more companies experiencing turnover growth.

Monthly retail sales

Monthly retail sales reached new highs of £9bn in December 2017, up 4% year-on-year (YoY). Equally, retail sales in March 2018 hit £7bn, an increase of 4% YoY. If we dig beneath these headline numbers, we find some other interesting trends:

  • 75% of retail companies with a turnover higher than £10m experienced sales growth in the last year. This is an increase over 2017, where 68% of companies experienced growth
  • The average YoY sales growth for retailers is positive (7%) so, on the whole, companies are growing. Again, this is an increase on 2017, where the average growth was 6%
  • If we focus on some of the more prominent retailers, the YoY change in sales for those with a turnover greater than £100m ranges from -58% for farm equipment supplier Countrywide Farmers Plc, all the way through to Manchester-headquartered fast fashion retailer Missguided (+76%)
  • Well-known brands experiencing a decline in sales include The Disney Store (-14%), Warehouse (-13%), Mamas & Papas (-9%), Topshop / Topman (-6%) and B&Q (-3%)

Looking at the bigger picture, what does this show? That it’s not all doom and gloom - far from it, in fact. Overall, the UK retail industry is stronger than ever, with spending having increased steadily over the past ten years. 

E-commerce is leading the way

In the last year, e-commerce companies have grown twice as fast as other retailers, with an average increase in annual sales of 15% vs 7% for other retailers. This level of growth has been consistent over the last five years, suggesting that the growth of e-commerce is not showing any signs of slowing down. Over the last five years, e-commerce companies have been growing an average of 2.4x faster than other retailers (12% vs 5% per year).

Multi-channel retailers with an e-commerce presence are also experiencing growth, with sales reaching £1.6bn in December 2017, a 9% increase on the previous year. This trend continues to further accelerate, with sales in April 2018 up by 12% YoY.

The chart below highlights the stark contrast between in-store and internet sales, with internet sales increasing 590% in the last ten years, compared to a stagnant 26% for in-store sales.

Sales Growth index

Who are the retail growth stars?

There are some amazing examples of retail growth in the UK sector right now.

The fastest growing retailer in the last year was fast fashion retailer Missguided, yet the top 10 encompasses retail businesses from sectors as varied as games, kitchens and luxury goods. However, the stand-out sector is clearly fashion, with six of the top ten companies being fashion retailers. This highlights an apparent shift in consumer preferences and shopping habits; something e-commerce companies have been able to react to much faster than traditional high street fashion retailers.

Retail Growth Stars

What separates the retail growth stars from the rest? One of the key factors seems to be their use of data and AI, with at least 60% of them appearing to be early adopters of AI technology.

AI is accelerating the growth of the best performing UK retailers

In today’s retail landscape, the companies that are performing well are adapting to change, embracing and capitalising on the new technologies available to them.

Artificial intelligence is powering the new retail revolution. E-commerce companies are the biggest adopters of AI throughout the entire sector, which makes them a good barometer for the impact it can have.

AI drives business growth

We analysed e-commerce companies with 50-249 employees that were turning over more than £10m. On average, those companies using AI enjoyed an 18% year-on-year sales growth in 2017, a significant 30% faster than companies who were not using AI (who grew at 14%).

YoY Sales Growth
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AI increases profit margins

Among those companies, we found that the median gross profit margin for companies that are using AI was 50% higher than those who aren’t (48% vs 32%).

Gross Profit Margin
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AI improves inventories

We also found that AI can dramatically improve inventory management. The median number of stock days for companies that are using AI in our sample was 43. This is a 9% reduction on the 47 median stock days of companies not using AI.

Stock Days
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In summary

Artificial intelligence presents retail businesses with a fantastic opportunity to outperform their competition and catch up with some of the leaders in their space. In the immediate future, we expect to see those companies that are standing still and failing to utilise AI struggling. The winners in this retail revolution will be those that are leveraging and using their data to its fullest potential - and this isn’t possible without artificial intelligence.

If you’d like to find out more about the impact of AI on the retail sector or want to discuss what it could do for your business, find me on LinkedIn or get in touch with one of the team.

AI Opportunity For Retail