Prepare for a challenging 2024, UK retailers! As we usher in the New Year, insights from the KPMG/RetailNext Retail Health Index (RHI) suggest a potential dip in consumer demand, echoing post-Christmas spending habits.
Industry experts foresee rising costs, including mounting mortgage and rental expenses, leading consumers to tighten their belts in the first months of 2024. This spells particularly tough times for non-food stores.
The report highlights a subdued Christmas trading period, especially for non-food categories. Even food retailers, resorting to heightened promotional activities, are unlikely to find respite in 2024. The retail sector is gearing up for a challenging year.
Consumers are expected to hit the «pause button» on spending in the opening months of 2024. Despite a slight boost in household income, consumer sentiment remains subdued due to the prevailing narrative of an ailing economy.
Paul Martin, UK head of retail at KPMG, notes a subdued atmosphere leading up to Christmas. Despite extended Black Friday sales, early indicators suggest this year’s Christmas trading is among the worst since the pandemic’s onset.
As economic challenges seep into consumer resilience, the retail sector is poised for significant downward pressures on demand and margin in early 2024. However, optimism lingers on the horizon, with expectations of a potential turnaround by April – just as hefty increases in minimum wage and business rates impact the bottom line. Retailers are anxiously awaiting positive developments in the Chancellor’s Budget in March.
While economic challenges persist, retailers have showcased resilience, adapting to shocks and changing consumer demands. Although inflationary pressures may be easing, headwinds from monetary policy tightening and rigid fiscal settings persist. For the next few months, the retail sector is expected to tread water, maneuvering from one shock to another.
Nick Bubb, an independent retail analyst, adds insights into a lackluster Q4 2023, marked by volume pressure in non-food categories. Consumers seem to be tightening their belts, with post-Christmas discounting likely to persist. The broader outlook for the retail sector hinges on when the Bank of England can consider lowering interest rates, potentially alleviating pressure on ‘big-ticket’ spending, albeit not before the second half of 2024.
As the retail landscape evolves, the report suggests that [retail] consolidation might be inevitable, hinting at an uptick in buyout deals and mergers.
