The Retailer Winter edition_2020

Market insights and trends

How can retailers thrive in a changing landscape? A review of 2019 and our expectations for 2020

LISA HOOKER LEADER OF INDUSTRY FOR CONSUMER MARKETS P w C

LAST YEAR WAS ANOTHER TOUGH YEAR IN THE RETAIL SECTOR, BUT NOT UNEXPECTED. POLITICAL AND ECONOMIC UNCERTAINTY AND DECLINING HIGH-STREET FOOTFALL WERE ALWAYS GOING TO AFFECT A DIFFICULT TRADING ENVIRONMENT. BUT IT WASN’T ALL BAD NEWS: WE SAW A RECORD-BREAKING BLACK FRIDAY WEEKEND AND SIGNIFICANT SUCCESS FOR CERTAIN ONLINE AND HIGH- STREET RETAILERS ACROSS THE GOLDEN QUARTER. While this year may be equally difficult, with similar challenges to navigate, there are opportunities in the sector for those retailers that get it right in the year ahead. How did the retail sector perform over the Golden Quarter? Headlines and coverage that suggested it would be the ‘worst year on record’ were a little wide of the mark. There were negatives. Our Store Openings and Closures report showed a record number of net store closures (-1,234) and a total of 2,868 store closures: the most for five years. CVAs continued to be used by retailers to reduce store estates and rent levels, and there were several high-profile administrations. But there were positives, too. Consumer sentiment has been volatile but remarkably resilient over the past five years. And despite political and economic upheaval, consumers are still looking to spend; our most recent survey shows an increase in consumer sentiment to its highest level in five years. We’re seeing high employment levels, wages rising faster than inflation (partly driven by National Living Wages increases) and low interest rates, all giving consumers more spending power. The government is also putting retail firmly on its agenda, through initiatives such as the Future High Streets Fund, High Street Task Force and the Towns Fund. That said, Christmas trading was flat or even slightly down. We saw the late Black Friday weekend cannibalise December trading as consumers bought Christmas presents early and at a discount. Interestingly, most retailers showed discipline on promotional activity in the run-up to Christmas, although fashion retailers remained on promotion more than other sectors. We also saw the toughest Christmas for the grocery sector in five years as consumers economised, reduced waste or shopped at discounters. But, as ever, in a tough, flat market, there were successes for those retailers that know their customers well and invested in their proposition, whether product ranges, stores or prices.

How will the UK economic outlook for 2020 affect retailers? We’re heading into 2020 with a slowing global economy. The outlook for the UK, in particular, is uncertain given Brexit, but most economists are forecasting little or no growth this year. Even though consumers are confident and have more money in their pockets, given the external environment, the best retailers should expect is little or no growth in the market this year, similar to 2019. Are consumers' priorities changing and will it affect retailers? Despite economic forecasts, consumers nationwide expect to be financially better off in the next 12 months, showing a significant improvement on sentiment. With this improvement in sentiment comes a change in spending priorities. In the past three years, consumers have told us that they expect to spend more on groceries, due to inflation, and less on every other discretionary category. This year, while grocery remains the top spending priority for most, many of us expect to economise, by reducing waste or shopping around. Meanwhile, some categories where we’ve been cutting back are growing in importance, especially holidays and home improvements. For under-35s, health and well-being is a top-three spending priority, while, for under-25s, fashion has entered the top three, perhaps explaining the continued outperformance of young online fashion retailers over the Christmas period. Another emerging trend is the shift towards sustainability and ethical consumerism. While only 48% of consumers told us that they considered these factors in their Christmas shopping purchases, it was significantly higher among the young, with 73% of under-25s choosing more sustainable gifts, including buying secondhand or giving homemade presents. Could this be the start of a wider trend? If 2019 was characterised by the “cautious” consumer, spending carefully, avoiding frivolous purchases and putting off less urgent bigger ticket investments, could 2020 see a shift towards a more “considered” consumer? With higher consumer confidence and more disposable income, it’s not that consumers can’t spend, it’s that retailers need to give them a reason to part with hard-earned cash in an otherwise flat market.

28 | winter 2020 | the retailer