The ongoing cost-of-living crisis looks set to dampen retailers hopes for recovery in 2024, with sales volumes unlikely to recover until at least 2025, according to new data from advisory firm BDO.
New research from BDO’s annual Retail Forecast Report reveals that despite the retail sector recording 4% growth to £378bn in 2023, sales volumes dropped by 5% as high inflation and the cost-of-living crisis continues to pull on consumer purse strings.
According to figures from BDO’s monthly High Street Sales Tracker, total sales growth also fell in all but one month of 2023, compared to the previous year.
Despite consumer spending sentiment rising gradually throughout 2023, it still remains in firmly negative territory says BDO. The percentage planning to spend less in the first half of 2024 significantly outpaces those who plan to spend more across all categories except food and grocery.
Consumers plan to cut spending across a range of non-essentials over the next six months; almost a quarter (23%) of households plan to spend less on clothing, footwear and accessories, while 28% will cut spending on ‘big ticket items’ such as furniture or home appliances.
Looking at essential spending, 46% of households are expecting to spend more on food and groceries over the next six months, however changing consumer habits will continue to impact performance within the food and grocery sector. Almost three quarters (72%) of consumers expect their shopping habits to change in response to inflation.
Two fifths (40%) say they have or will start to buy cheaper products from their usual retailer, while a fifth (20%) say they have or will buy fewer items or shop less regularly. Roughly one in every ten households (12%) are choosing to switch to cheaper retailers.
Sophie Michael, head of retail and wholesale at BDO, commented: “Retailers and wholesalers are caught between a rock and a hard place. They have been subject to inflationary costs across the whole supply chain and their operating costs are expected to continue to rise in 2024 with the uplift in the National Living Wage, the cost of energy bills and the end of the Government’s support on business rates for medium and large retailers.
“At the same time, competition for the consumer purse has never been stronger among different categories of discretionary spend. Consumers continue to struggle with their own regular bills and are planning to buy less and make more cautious purchases. The challenges will differ for those in the essential and non-essential spend categories. Some will have to adapt to changing spending habits and demand for cheaper products, while others will be more focused on attracting consumers and their discretionary spend on products rather than leisure experiences.”
Michael added: “As we enter Q1 of 2024, a traditionally difficult trading period for the sector, those that remain agile, innovative and really understand and engage with their customers will have the best chance of growth.
“Retail is a hugely important sector for the UK economy, generating almost £400bn in revenues and employing 3 million people across the UK. The pressure is on the Government to ensure they offer long-term certainty, support and policies that will allow the sector to grow and boost the economy as a whole.”
Lucy Beresford is the joint managing-director of based beauty brand incubator company, SLG Brands. SLG Brands is a mid-sized business based in Cheltenham, with revenues of £31m and c. 100 employees,
Beresford said: “There is no doubt that the cost of living crisis and drop in consumer spending has been and will continue to be a challenge to all retailers and one we can’t ignore. We know our customers are seeking real value and making more conscious spending decisions with the current economic conditions looking set to continue for some time.
“Within our specific area of the beauty industry we have benefited from what is known as ‘the lipstick effect’. In times where discretionary spend may be lower, many consumers choose to cull significant spending or bigger ticket purchases in-lieu of moments of ‘self-care’ and indulgence, often from beauty products like ours.
“As a business a big proportion of our market are ‘Generation Z’ consumers, many of whom are less impacted by rising costs such as mortgages and energy bills. Whilst this group are still spending more cautiously, their discretionary spend has remained more resilient.
“Despite this resilience, knowing your customer has never been more important. In the beauty categories, we know that our Gen Z customers are prepared to spend, when they perceive highly efficacious products and where their research warrants the investment. They are far more interested in prevention than cure, so are prepared to invest in their health and wellbeing, this allows us to market in the right way and at the right time.
“Consumers now have far more information available to them, so they like to research and are often well informed. They use social media as an evaluation tool and they look for ambassadors and peers before forming an opinion, this is a total shift from the types of advertising and marketing that would have been used even just a few years ago, and I believe as a business, we have well adapted to this to stay ahead of the curve.
“Despite the challenges of the last year, here at SLG Brands we have chosen to build new capabilities, innovate and continue to invest in a platform of growth, rather than slam the brakes on. As a result in 2024 we see the launch of a new brand and are also set to scale in important regions such as North America. We entered this market in 2020 just three months prior to the pandemic, but thankfully we have been able to not only protect, but grow. Faster scale is now anticipated.
“We are of course mindful to the volatility of the current market, and I think we would all agree, businesses across all sectors have faced their fair share of curveballs in the last four years. However, as a nimble and creative entity, we feel able to react and respond to whatever challenges, but most importantly, opportunities lie ahead.”
