Could Osborne's Budget create retail acquisition opportunities?

After an initially positive response to Chancellor George Osborne's first Conservative Budget, businesses are digging a little deeper into the figures and finding a few causes for concern. The retail sector is among the sectors expected to be hit by some of the announcements, so we're taking a closer look at how the retail M&A market could evolve in the coming months.


The Impact of Living Wage on Retail
Mr Osborne announced the introduction of a new living wage. This will see the national minimum wage increase gradually from £6.50 an hour, to £9 an hour in 2020. The changes will mean that anyone aged 25 and over will by law have to be paid the national 'living wage', making workers in their late twenties significantly more expensive than younger team members.

For business owners operating in the retail sector, this change has the potential to massively increase their outgoings in salaries and many people have indicated that it will be the retail sector that bears the brunt of the wage changes.

James Lowman, chief executive of the Association of Convenience Stores, said that the changes will have a “devastating impact” on thousands of stores. He commented: “This will lead to retailers having to reduce staff hours, work more hours in their business and ultimately cancel their investment plans.”

Others have rejected the idea that the retail industry is being automatically seen as a low wage employer, but overall there is serious worry that the changes will dramatically increase the financial pressure on small retailers and could even force some to sell their retail business.


Broader Optimism
Before the Budget, figures indicated the expected levels of summer optimism among retailers. CBI figures showed that although growth in sales volumes slowed in the 12 months to June in comparison to the previous month, the industry remained positive.

Grocers were the main cause of the slowdown with all other major sectors reporting rises in the levels of volume growth and overall a positive 31 per cent were anticipated further pickup to be seen over the course of July.

Barry Williams, chief customer officer with Asda and the distributive trades survey chairman of the CBI, summed up the atmosphere in the retail industry: “Even though growth slowed slightly this month, retailers are not letting that subdue their hopes for the season.

“Low inflation – expected to stay below one per cent throughout this year – has given customers more discretionary income. The power of the pound in their pocket is going further and shoppers are spending more on treats, like flowers and jewellery, as well as on activities with their families.”


A Perfect Blend?
With the Budget just days behind us, it's too early to say where the industry will go. But if Osborne's policies do hit some retailers hard, it might well be time to keep an eye on retail businesses for sale and their distressed counterparts. The right buyer might be able to pick up assets for below market value or even an entire company ripe for the implementation of a turnaround strategy.

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