The Retailer Spring Edition 2023

THE RETAILER

40

THE RISE OF THE CONSCIOUS CONSUMER CREATES NEW OPPORTUNITIES

Aled Patchett Managing Director, Head of Retail and Consumer Goods Lloyds Bank Commercial Banking

T o prosper, retailers need to dig into the data as households alter their spend ing habits to reflect the economic environment.

Spending in convenience stores was 24% higher than a year earlier.” ‘‘ Whatever the drivers, the growth in convenience store spending highlights the opportunity for supermarkets to continue expanding convenience store formats. Consumer behaviour is also changing differently in various parts of the UK. Non-essential spending is under greater pressure in London (growing just 1.4% in the year to February 2023) than in Scotland (+5.9%), Wales (+5.1%) and the South West (+4.4%). From January to February 2023, overall spend fell 7.4% in London compared to a fall of just 5.9% in Scotland. This may reflect the general higher living costs for Londoners, London has one of the highest increases in essential spending, up 14% YoY. Retailers eager to grow their London sales might do well to focus on value for money propositions. Changes in spending by different demographic groups also varies. Retail spending by younger, budget-conscious people with limited savings and salaries – those ‘setting forth’ – fell 3.8% in the year to February 2023. In contrast, comfortable homeowners in their 40s (‘settled and saving’) cut spending by just 2.5%, perhaps because they have a greater savings cushion and more experience of budgeting in tough times. This demographic trend may support retailers considering different price points and promotions when targeting specific consumer types. While these big picture figures aid understanding of the broad dynamic of consumer spending, digging into the data throws up some surprises that could be valuable. For instance, given consumers’ cost focus, it could be anticipated that discounters would be outgrowing other supermarkets; their sales value was 20% higher in the year to February 2023, compared to 4% for mid range supermarkets. But the data also shows that spending in convenience stores was 24% higher than a year earlier. This might reflect the fact that working from home (at least part of the week) is now routine for many white-collar workers. People may therefore spend less, but more frequently and in local shops rather than travelling to a large supermarket. Or they may purchase small treats as they cut back on other spending.

UK retail spending is changing. Consumers are spending more of their money on essentials and therefore have less to spend on non-essentials. Lloyds Bank collects data on debit card, credit card, direct debit and other payments made by 26 million retail customers; these show that the sales value of essential spending in February 2023 was up 13.3% on a year earlier. In contrast, non-essential spending was up just 3.7%. Both essential and non-essential spending should be seen in the context of double-digit inflation. To a large extent, this shift is unsurprising. Spending on petrol and energy is up by a third in the year to February 2023, reflecting higher costs. Bank of England base rate rises have increased borrowing costs, prompting some households to re-examine their spending. But consumer spending needs to be seen in the round. Non-essential spend in February 2023 is up from same time last year. In other words, while at first glance consumer trends might look like bad news for retailers, consumers haven’t stopped spending. They are just making different choices that reflect their changing priorities. In 2023, we are seeing the rise of the conscious consumer. The goal for retailers is to pinpoint opportunities and align their offer with customers’ expectations. Retailers constantly analyse their own customer data to spot sales opportunities. But external data can deliver both a broader and deeper view of evolving consumer trends, enabling retailers to better navigate today’s uncertainty. Looking for the bright spots Lloyds Bank data indicates that some retail sectors have been more resilient than others. Among non-essential categories, travel has remained impressively robust, with spending on airlines up 43% in the year to February 2023 and travel agency spending 23% higher. Likewise, spending on restaurants grew 7% in the same period. Within the retail sector, spending on health and beauty is also holding up, with a 6% rise. And as essential spending has come to the fore, supermarkets have fared especially well, enjoying a 8% rise.