UK retail sector to face tough challenges in early 2024

The KPMG/RetailNext Retail Think Tank (RTT) attributes this anticipated difficulty to falling consumer demand and a barrage of rising costs. Despite an increase in household income due to lower national insurance contributions, wage growth, and reduced fuel bills, consumer sentiment remains dampened by the broader economic context. The RHI, which evaluates the health of the retail sector by considering demand, margin, and cost, has documented a consistent decline in retail health since spring 2022. This downward trend is expected to continue, with the RHI predicted to hit a low of 66 points by the end of the first quarter (Q1) of 2024, reminiscent of the 2020 pandemic lockdown levels.

The early months of 2024 are expected to be marked by a downturn in consumer demand, especially in non-food categories. However, the RTT warns that the real challenge will emerge in Q2 2024 as retailers confront rising costs, including an increase in the minimum wage and a 6.7 per cent increase in business rates. While demand might rebound slightly in spring 2024, the escalating costs could strain retailers, especially those whose finances are yet to stabilise. The RTT anticipates a rise in insolvency rates among small retailers and an uptick in merger and acquisition activities, with the fashion and pure online retail sectors likely facing the brunt of consolidation pressures.

The analysis further highlights that household financial assets surpassing liabilities by £4 billion suggests a polarised spending ability among households. Savers, benefiting from higher interest rates, may continue to hold back on spending in early 2024. Additionally, the luxury retail and big-ticket categories are expected to continue experiencing a downturn in sales. On a brighter note, growth in 2024 is projected to come from the discount and value retail channels.

London retailers are bracing for a 'double whammy' effect, facing the challenges of rising business rates, compounded by the fact that rates in London are significantly higher than in the rest of the UK. In response to falling consumer demand, further promotional activities are anticipated as retailers aim to clear down excess stock.

“Despite Black Friday sales going deeper and lasting longer than last year, indicators so far are that Christmas trading this year has been one of the worst since the pandemic hit, and although there is still all to play for in the final weeks of December, it is looking as if it’s too late turn fortunes around,” said Paul Martin, UK head of retail at KPMG.

“Despite retailers throwing everything at longer, deeper Black Friday promotions this year, footfall was down nearly 2 per cent on last year. The lower demand environment is likely to signal a much higher promotional environment in 2024, as retailers fight for sales,” said Gary Whittemore, head of sales, EMEA and APAC at RetailNext.

Fibre2Fashion News Desk (DP)