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National Living Wage bites as retail costs rise at fastest rate in two years

Richard Lim, Chief Executive, Retail Economics said: "A toxic mix of rising operational costs and more expensive imports, driven by the collapse in sterling, has pushed up the cost of retailers doing business at the fastest rate in two years.

"Staffing accounts for over 40 per cent of operational costs for most retailers and so last April’s implementation of the National Living Wage and the latest round of National Minimum Wage rises is biting hard on the industry’s wage bill. Indeed, labour costs facing retailers rose on average by nearly 5 per cent in the fourth quarter of 2016.

"Our Retail Cost Base Index shows that retailers also face accelerating costs for distribution as sterling denominated fuel and the rise in oil prices push up the cost of their logistics and home deliveries for online orders.

"While some businesses will take a hit on margins rather than passing on the full impact of rising costs, households will have to share some of the pain. How much pain and how quickly it feeds through will be critical in determining the strength of spending this year.

"We forecast inflation to hit 3 per cent this year which will erode disposable incomes and put the least affluent households who are ‘just about managing’ under significant pressure.”

Key findings from the Retail Economics/Retail Week Cost Base Index Q4 2016

Retail operational costs in Q4 2016 vs. Q4 2015

Total operating costs up by +3.9 per cent for retail industry

Retail labour costs +4.9 per cent
Retail rents +4.7 per cent
Distribution +3.5 per cent
Business rates +2.0 per cent
Central costs +2.0 per cent
Utilities +0.7 per cent

Subscribers can download the latest edition of the Retail Cost Base Index from retaileconomics.co.uk/library-retail-cost-base-index

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