Christmas is often the time of year when we see retailers thriving. With heavy footfall, motivated shoppers, and plenty of marketing potential surrounding the festive period, this is usually a time that retail businesses rely on to boost sales and meet their financial goals.
Unfortunately, 2023 festivities quickly came with warnings, suggesting that retailers would likely suffer due to the drought caused by the cost of living crisis.
Households across the UK have had to adapt to the rise in prices, significantly stretching their budgets and predictions of reduced spending began to increase. In response, we took a look at how the retail industry may be affected by this, or if they’d manage to secure their Christmas gifts and defy expectations.
Understanding the challenges retailers and businesses were facing as we moved into the festive period gave us a deeper insight into why the sector was concerned to begin with.
The cost of living crisis quickly became the topic of discussion in late 2021. Largely contributed to inflation, this was a significant part of the threats facing the industry, as costs rising for spenders led to tighter budgets.
The soaring energy costs and rising interest rates also left consumers struggling with the added strain on their finances. Daily news emerging of new supply chain failures, manufacturer shortages and delays, and sanctions in response to geopolitical conflict all create an environment that is littered with obstacles.
Overall, these challenges left consumer spending outlook reports bleak. The retail industry was warned of the 53% of people worried about the cost of Christmas in 2023, as well as 26% of people planning on reducing their overall spending over the holidays.
For more details, look at our analysis ahead of the Christmas period, is it make or break for retail and hospitality?.
Worries about the Christmas period not delivering the much-needed boost for the retail sector began early on in the year. YouGov reported that over half (52%) of Britons planned on spending less during Christmas, and as people became more anxious about the cost of living crisis, spending motivation dropped.
As a result, retailers had a harder situation to deal with. Whilst Christmas is already an ‘all hands on deck’ affair, businesses had to find new ways to encourage shoppers to part with their cash.
No longer able to rely on the festive spirit to spur spenders, retailers recognised the necessity of price adjustments to balance their sheets, without pricing themselves out of their target market.
Instead of imposing inflated prices, fair pricing structures and consumer-friendly deals and promotions were implemented. Risk mitigation measures were also put in place, with retailers stalling product development and focusing their energy on sales of current unsold inventory.
Other efforts were made including streamlining operations to cut costs and leveraging customer insights to improve alignment with customer preferences and spending patterns.
But did these additional efforts carry the industry through the festive period?
Christmas Eve in 2023 saw headlines focusing on the number of shoppers falling, with analysis revealing footfall was 20.6% lower than the 24th December 2022.
This may have been a harsh look into the future, as British retailers reported lacklustre sales around Christmas. Trade bodies highlighted that the 1.7% increase in cash spending represented a fall in purchases once inflation had been considered.
Overall, retailers’ trading reports have been a mixed bag. Some have revealed a profitable Christmas, including the likes of Aldi and Lidl. However, JD Sports has lowered its full-year pre-tax profit guidance after reporting a "softer and more promotional" peak trading season than expected.
Supermarkets had a more festive Christmas after 488 million trips were made to the shops. Spending a record £13.7bn over December, Tesco cinched a 16.7% rise in ‘Finest Range’ sales. Meanwhile, Next has raised its profit forecast for the fifth time in eight months, anticipating a pre-tax profit of £905m, a 4% increase from last year.
Despite these favourable outcomes, total general merchandise revenue fell by 3.7% in the Christmas period, and clothing sales by 6%.
"The festive period failed to make amends for a challenging year of sluggish retail sales growth, as weak consumer confidence continued to hold back spending," BRC Chief Executive Helen Dickinson said.
Whilst the overall picture might be bleak, some retailers are readying themselves for a new year of growth and success.
Electrical retailer, Currys, has highlighted that their group profit before tax is to be ahead of expectations, despite a reduction in sales over the festive period. B&M also reported a sunnier outlook, with a 5% rise in revenue between October and December 2023, and maintained its full-year profit outlook.
“We expect (inflation) to fall further in the opening months of 2024. This puts more spending power in the pockets of UK consumers and should help support them to continue to spend, even against the tough backdrop of weak economic growth," Barclays Chief Economist Jack Meaning said.
The positive upward movements for some of the industry should inspire some hope for businesses as 2024 rolls in. However, the harsh reality is clear as day for many working within the sector, increasing pressure as the end of the financial year edges closer.
Looking deeper into the potential risk in the year ahead, Red Flag Alert data found there are 8,837 businesses in the retail sector in a critical state of financial distress.
Unfortunately, this could indicate a steep rise in the number of insolvencies being recorded, having a severe knock-on effect across retailers, suppliers, manufacturers, and more. Following 30,199 insolvencies in 2023 alone, the potential for a staggering impact is high.
Moving forward, businesses must enhance their monitoring processes to be able to buy themselves enough time to protect their business from the knock-on effect of insolvency.
Red Flag Alert is the all-in-one tool businesses need to mitigate risk and protect themselves from the ripple effect. By providing comprehensive business data that is reliable and up-to-date, businesses can monitor their portfolios with ease and begin spotting insolvency indicators months before they strike.
It’s through the instant and digestible data that businesses can analyse information with ease, consolidated in an easy-to-read report that distinctly highlights worrisome partners and strong potential prospects.
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