UK Retailers Face Weak Demand And A Barrage Of Increased Costs.

Tough first few months of 2024 forecast for the industry as consumer confidence remains low.

Retailers are facing a tough new year as weak consumer demand is expected to combine with a barrage of increased costs, including the higher minimum wage.

Shoppers are likely to keep their spending on pause during the first months of 2024, according to forecasts published today by the Retail Think Tank, a group of industry experts who analyse the health of the sector, as mounting mortgage and rental costs weigh on consumer confidence.

“It is going to get worse,” said Paul Martin, the UK head of retail at advisory firm KPMG.

While demand could pick up in the spring, when retailers are expected to face a financial squeeze – particularly those trading solely online in the hard-hit fashion sector or without strong financial backing – as the April rise in the minimum wage and a 6.7% business rate increase for most retailers kick in.

“There will be pressure on consolidation,” the thinktank concluded – suggesting that buyout deals and mergers would be on the cards.

The run-up to Christmas has been “pretty subdued”, Martin said, with shoppers buying fewer items as they battled higher household bills. Clothing sales have been particularly hard hit amid relatively warm weather, and shoppers have held back from making expensive purchases such as furniture or big electrical goods.

There could be a very strong end to the season, as we saw in 2022, as many families take advantage of the full week of trading, including a whole weekend, ahead of Christmas Day on Monday. The relatively late end of term for many schools will also fuel a last-minute rush.

However, most decisions on the biggest part of the non-food shop – clothing – will have already been made ahead of Christmas parties, so Martin concluded that “at best there is going to be stagnation”.

Nick Bubb, the independent retail analyst who also sits on the panel, said: “The final quarter of 2023 saw a lacklustre performance with volume pressure in non-food categories and the real sense that consumers are tightening their belts. Whilst a lot depends on what we see happen over the next few weeks, there has already been a lot of discounting and this is likely to continue after Christmas as well.”

Some consumers should have more cash in their pockets post-Christmas, as wage growth is finally outstripping inflation and cuts in national insurance contributions and fuel bills. However, the thinktank believes that concerns about the wider economy and high borrowing costs will mean consumers will keep their finger on the spending pause button in the opening months of 2024.

Source: The Guardian UK.