Strong consumer demand, better than expected food sales and a successful World Cup helped steady the health of the retail sector in the final quarter of 2022 according to the latest assessment by KPMG/Ipsos Retail Think Tank (RTT) members.
With a host of retail data for November and December pointing to a better than expected golden quarter, the deterioration of the health of the retail sector was less severe than previously thought by the RTT, which they now believe fell by just one point in Q4 22 (Oct – Dec) putting the latest Retail Health Index (RHI) at 70 points in the final quarter of this year.
Football, food and family were highlighted as the key themes for the festive period this year (compared to the Coronavirus Omicron worries at Christmas 2021), as many under-estimated just how important an unrestricted Christmas was to consumers, determined to enjoy time with family and friends. A winter World Cup also produced a boost for retailers as extra sales of food and alcohol were stimulated in December, possibly at the expense of the hospitality sector, as many avoided train strikes to stay at home and enjoy the World Cup. Fashion and energy efficient homeware continued to drive demand, helped by the well-timed cold snap in mid-December.
Whilst margins and costs continued to be a challenge for retailers, top line sales were better in December, driven by inflation, with Food volumes only down by 1.5%, according to NielsenIQ, – an improvement on the 5% volume declines experienced in the opening months of Q4 22.
Despite the cold weather, Q4 22 saw a shift back to physical shopping with footfall figures for November up 9% year on year. Combined with the postal strikes, bargain hungry consumers headed out to the high street to guarantee they could secure the gifts they needed in time for Christmas. However, online retailers had a less than festive golden quarter this year with sales under pressure and there is some evidence that independent/smaller retailers underperformed the big retail chains.
Other economic data point to more resilience in the economy at the end of 2022 as GDP rose by 0.1% on the month in November, whilst the improvement in most leading indicators suggest may have been growth in the economy in Q4, not recession. Cost of living payments issued to consumers in November could have helped to boost confidence amongst consumers as the Government absorbed some of the pressure of high inflation and rising interest rates on households via those payments. The rise in consumer credit to £1.5bn in November, driven by a £1.2bn rise in credit card borrowing, could also suggest that some households were determined to enjoy Christmas by borrowing to see them through.
Commenting on retail health for Q4 22, Paul Martin, UK head of retail at KPMG, said: “The economy and consumer resolve showed great resilience towards the end of 2022 which bought temporary relief for the retail sector, as consumers were determined to enjoy a great Christmas with friends and family. Coupled with a winter World Cup, supermarkets and high street stores were given a festive boost amid bad weather and industrial strikes across the country as consumer demand remained unexpectedly robust in December.
“Those retailers that have had a strong hold on cost controls will have benefited from a rise in demand and inflationary driven price increases in Q4 22, and it is still difficult to assess how much of the growth being reported in the retail sector has been driven by demand, and how much is just down to inflation.
“Whilst economic data shows that we may have escaped recession in 2022, it is unlikely that this will be the case in the year ahead as interest rates continue to climb, energy prices are set to rise again and consumers face the credit cards bills that many used to celebrate Christmas. As we head into 2023, financing business debt and investment is also becoming more expensive, combined with a more competitive, value led, lower volume, retail environment, will lead to more casualties and asset disposals among those businesses that do have high debt levels and low cash reserves. Online players and mid-tier retailers who experienced a rapid increase in demand during the Covid-19 pandemic and are now facing a slowing market and increased cost-base could find the year ahead very challenging. However, there will be opportunities and some organisations will benefit from the current situation through market-share growth and the consolidation opportunities that will arise.”
