The Retailer Winter Edition 2023

HAS COVID BEEN A SUCCESS FOR RETAIL?

Helen Dickinson OBE Chief Executive British Retail Consortium

When 2022 began, we thought the worst was over. The Christmas Covid wave was paving the way to a spending boost, as we unlocked from pandemic-behaviours. Yet the war in Ukraine put inflation, already at a 30-year high, into overdrive. Energy prices rose, fertilizer and animal feed costs rose, transport costs rose, basically every cost line rose while real incomes of customers fell. Demand faltered and government went into tail spin. Fast forward to December. Sales were a little better than many expected – the December BRC-KPMG Retail Sales Monitor showed a seemingly decent 6.9% growth. Yet with double digit inflation, last week’s ONS figures confirmed that December was the ninth consecutive month of volume declines. Smaller retailers were hit harder but many also benefitted more from the government support on energy. Larger businesses were better positioned to absorb some of the cost increases but as many had hedged energy contracts at least partially through last year, some of the support didn’t hit the sides. So, what next? Consumer confidence (according to GfK) languishes at a depressing -45, having hovered around the -40s since May. This is worse than the depths of the pandemic, and shows little sign of meaningful improvement. But, as the inflationary pressures begin to annualise – filtering out of the Consumer Price Index – consumer confidence may begin to return. On New Year's Day, as many of us were shaking off the celebrations of the night before, we put out our forecast for sales in the year ahead. Our analysis suggests that year on year sales growth, at 3.1% in 2022, is set to drop to between 1% and 2.3% in the first half of 2023. With inflation expected to remain high, this will still represent further falls in volumes. Yet, having fallen out the frying pan into the fire, the second half of the year will at least have returned the industry to the pan, and beginning to slowly, but confidently climb back up the handle. Our analysis shows retail sales rising to between 3.6% and 4.7% from July to December, catching up with inflation as the latter falls throughout the year. Yes, the next few months are likely to be challenging for many but perhaps we are reaching the eye of storm. Surelymanaging the next year must be all about containing the impact of the down turn but not letting go of building the longer-term foundations to capitalise on the opportunities when the recovery comes. That’s true for individual businesses and true for how we think about our work for the industry. Our “Today Agenda” focuses on the issues of the here and now. In November, after months of lobbying from the BRC and others on business rates, the Chancellor announced changes which we estimate are worth a saving for retail of approximately £1.5bn pa. For us there is plenty to go for this year as we face into some big regulatory issues, extended producer responsibility, changes to digital data and consumer regulations and labour shortages – all in a politically charged environment and in the lead up to a general election by 2024 at the latest. And in building the long term foundations, our members continue working on our collaborative multi-year ‘Change Programmes’ to help drive change across the industry faster than it would achieve on its own. Climate Action, Talent and D&I and digital transformation. Great businesses are putting these issues at the heart of their operations. It is one thing to bring down costs for the year ahead, but meaningless if your competitors are shifting their business model to lower costs and improve productivity for the decades to come. Take sustainability. Ultimately retailers face a series of questions. How to be ethical but affordable. Green but profitable. Maybe they are not either or. From reducing packaging to cutting energy use, such actions not only help the country tackle climate change but help retailers reduce energy use and cut future costs. Especially important as the cost of living crisis continues to bite, eating into consumer spending power, and limiting the ability for them to handle further price rises. Building for the long term while navigating the immediate challenges. The winners will be those meeting the needs of their customers. They will be the ones who understand that we all have a part to play in the cost of living crisis.

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Yes, the next few months are likely to be challenging for many but perhaps we are reaching the eye of storm.”