2024 Trends in Retail
The economic picture…
2023 was beset by a set of trends in retail. The twin issues of high inflation coupled with stagnant economic growth has damaged consumer spending power. Whilst inflation is expected to fall back toward the Bank of England’s 2% target in 2024, the public are still likely to feel constrained in their discretionary spend for several reasons.
- Economic growth is expected to remain flat for 2024, with the Bank of England predicting a coin toss as to whether the country will formally enter a recession during the year.
- The energy price cap (the maximum amount energy suppliers can charge you for each unit of energy) has risen by 5% at the start of the year to £1928. However, latest forecasts suggest that this figure will reduce by just over £300 to £1620 in the next review in April which will provide a much-needed boost to household finances.
- Food inflation, whilst falling, remained at 6.7% in December and overall inflation rose to 4.0%. The December figure is important as bills such as mobile phone and broadband providers use this to calculate annual price rises. Ofcom have indicated this practice is to be banned going forward.
- Given this stubborn, or ‘sticky,’ inflation the Bank of England may delay any cuts to base rate, keeping mortgage costs higher than recent averages. Despite this many lenders are now starting to cut their rates, from high of over 5%
- Unemployment is expected to rise in 2024 following a particularly tight labour market that saw wage growth at 8% in 2023. This is expected to fall back to 3.7% in 2024.
- Despite the cut to National Insurance announced by the Chancellor, taxation as a proportion of the economy will be at its highest since the post World War Two Government. Many analysts are predicting cuts to income tax in the Spring Budget but how much wriggle room the Chancellor has depends on how quickly inflation and borrowing rates fall.
So, to sum up, for the British public things will be less bad than last year but it remains to be seen as whether they will feel better off enough to start increasing non-discretionary spend.
Some predictions for trends in retail for 2024…
Supply Chain Instability
The recent attacks have already diverted global shipping via the Horn of Africa, whilst the Covid crisis demonstrated that supply chains are adaptable and remarkably resilient, increased costs for retailers with supply disruption possible if the instability in the Middle East continues. Therefore, retailers will be taking a close look at their supply chains to ensure they continue to cope with shocks because of the fraught geo-political situation.
Big Ticket Items
As a result of the anaemic economic outlook and higher housing costs, consumers have been shying away from ‘Big Ticket’ purchases in categories such as furniture and large electrical. With BoE rates cuts potentially delayed there is no relief for retailers in this area in the immediate term.
AI. Coming to a store near you?
This seems to be a refrain repeated by analysts year after year without ever actually materialising. Could this year be different? Maybe, but not as overtly as you may think. Some businesses (such as Octopus Energy) have had success in using AI capabilities to answer first line customer queries or complaints. In a retail context, my bet is that companies are more likely to use their rich customer data in order to bespoke loyalty offers, improve recommended search capability on their e-commerce platforms or use machine learning to reduce wastage. In any event these capabilities will require investment not only in technology but in the skills and people that sit alongside it.
Battle of the Loyalty Schemes
2023 saw Sainsburys park its tanks on Tesco’s Club Card lawn by introducing Nectar prices, immediate price savings on certain products of Nectar Card holders (in lieu of greater rewards in the form of Nectar Points). Boots also announced similar plans, reducing the value of the points accrued by customers in favour of offering more immediate price reductions. The Co-op have joined the trio in ditching its points systems. Consumer groups have been keeping a close eye on whether these schemes offer genuine savings and the CMA have announced an investigation.
In 2024 the scheme that can offer more tailored deals on the products they regularly buy will stand out in this now crowded proposition.
Focus on sustainability
Inflation was the watchword of 2023, but sustainability remains a priority and one of the key trends in retail in 2024 of both consumers and businesses, many of whom have signed to more aggressive carbon reduction targets than the 2050 UK deadline for carbon neutrality. Expect to hear more from businesses on how consumers can ‘close the loop’ with their goods. The environment is also likely to play a key role in the upcoming election…
And finally…
The Prime Minister announced that his ‘working assumption’ would be that the election would be in the second half of this year. The current polling points to a Labour victory, however, the swing required from Conservative to Labour for a majority would be one of the largest in British political history. Businesses will be watching the manifesto announcements with interest. Will there be major changes in the direction of travel? Time will tell, but regardless of the victor, business will be hoping for a decisive result that delivers certainty for the future.
If you’re a change leader in the Retail sector then it could be a dynamic and fast paced year ahead. Perhaps technology assessments and upgrades will be at the forefront of your journey? Or maybe you’ll look to streamline internal process to set yourself apart? Whatever your direction, Nine Feet Tall can help to take that anxiety away from your change journey. All you have to do to get the ball rolling is get in touch.
