‘Cost-of-living crisis to continue to dampen spending in 2024’

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, a new report has stated.

New research from BDO’s annual Retail Forecast Report reveals that despite the retail sector recording 4 per cent growth to £378bn in 2023, sales volumes dropped by 5 per cent 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 per cent) of households plan to spend less on clothing, footwear and accessories, while 28 per cent will cut spending on ‘big ticket items’ such as furniture or home appliances.

Looking at essential spending, 46 per cent 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 per cent) of consumers expect their shopping habits to change in response to inflation.

Two fifths (40 per cent) say they have or will start to buy cheaper products from their usual retailer, while a fifth (20 per cent) say they have or will buy fewer items or shop less regularly. Roughly one in every ten households (12 per cent) 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 three 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.”