A new report published by NatWest and Retail Economics has found that the uncertain economic backdrop continues to have an impact on retail and leisure spending in 2023.
NatWest’s 2023 Retail and Leisure Outlook report shows many shoppers have cut back spending on essentials such as food and drink by trading down to cheaper alternatives, and many are cancelling spending altogether on discretionary purchases such as holidays, takeaways and homeware.
Over a quarter of consumers – 28% – plan to cut all spending on homeware, whilst 27% plan to stop spending on takeaways. Essential purchases, such as groceries and food and drink, are being ‘traded down’ for cheaper providers and substitutes, by nearly 1 in 2 consumers (48%)
Elsewhere, the report also finds that:
- 56% of consumers expect their personal finances to weaken over the next year
- The least affluent are five times more likely to spend a greater proportion of their income in physical stores
- 43% of workers now adopt hybrid working patterns
- Work-from-home consumers are three times more likely to expect stronger finances in 2023, but 60% of them worry about housing costs
David Scott, head of consumer industries, NatWest said: “It feels like a long time since we have operated in any sort of normality. Market events have been unprecedented and for many the focus has been on simply surviving. Although some confidence appears to have been restored in recent weeks, pressure on profits is expected to remain intense in 2023.
Many shoppers have adopted recessionary behaviours, cutting back their spending on non-essentials by trading down to cheaper alternatives, and cancelling spending altogether on discretionary spending such as holidays and eating out.
However, the retail sector has some of the most talented and resilient people in the UK, and there are opportunities available for those who adapt to meet increased demand for sustainable choices, and a seamless journey across in-store and online.”
What’s shaping consumer spending in 2023?
During the cost of living crisis, consumers have been adapting their behaviour by putting value at the heart of their decision-making.
Shoppers are reverting to physical stores across categories that faced a drastic shift online during the pandemic, particularly food. When they’re on site, the report shows consumers expect a seamless transition between in-store and online, as well as more convenient payment options. A quarter (25%) of consumers want more convenient payment options such as mobile payment devices, for example.
Hybrid working impacts spending habits for good
Typical spending habits have been impacted by the pandemic, with 43% of workers now adopting hybrid working patterns. With changes to the labour market impacting on footfall rates, a rebalance is happening in-store.
The report shows the picture isn’t necessarily straightforward though: while the work environment remains in a state of flux, so too does the distribution of spending among this cohort of consumers Those expecting to work from home over the next year are increasingly likely to visit local stores, while those anticipating attending workplaces more are driving city and shopping centre footfall.
And work-from-home consumers are three times more likely to expect stronger finances in 2023, but 60% of them worry about housing costs.
Growth in sustainable choice
A more sustainability-conscious consumer is emerging. Their behaviour is being influenced by extreme weather events, the UK’s 2050 net zero commitment, and growing awareness of the environmental impacts of over consumption.
The data shows younger shoppers (who are becoming more economically significant) have the greatest intentions to shop more sustainably, although their actions do not always follow accordingly.
- While younger shoppers are the least likely to have made any changes in reducing their environmental impact, 44% intend to in future.
- 84% of the youngest consumers would shop more with those retailers and hospitality businesses demonstrating strong sustainable values.
- Younger shoppers are three times more likely to pay more for products from businesses with strong ethical and environmental values, compared with older consumers.
The full NatWest and Retail Economics 2023 Retail and Leisure report is available here.