To quote Paul Martin, UK Head of Retail for KPMG: “Even if the economic outlook remains muted, one thing history teaches us is that following a downturn we often experience an upturn, and the question should be, are you doing everything now to prepare for this?”
So, there are grounds for optimism, particularly for those retailers that worked hard to confront all of their challenges, work that will in 2024 start to pay off, leading some to consider for the first time in three years the holy grail of growth.
Clues as to where that growth will come from in 2024 are everywhere, particularly in Grocery, and Health & Beauty. Other winners will be those able to meet the needs of consumers that increasingly shop across multiple channels, so single-channel or pure-play operators will find it more difficult to prosper and deliver a profitable return. Therefore, the future of retail is likely to focus on hybrid business models that seamlessly connect all channels and touchpoints.
New growth models, such as retail media – already strongly adopted by the likes of Tesco, Currys and Kingfisher – may already be paying off. And this will lead to other new ideas and further developments around: closed-loop (end to end) social commerce buying journeys; cross-border; hybrid marketplaces where retailers sell own brand and 3rd party goods; subscription retail; and platform business models adding 3rd party brands either directly owned or in partnerships, the likes of which have been so successfully demonstrated by NEXT and M&S, for example.
Retailers will be hoping for greater financial and political stability as a foundation for this growth, and with interest rates now potentially having hit their peak and a general election pending within the next 12 months, this is certainly achievable in 2024 for those that focused on innovation and efficiency in 2023.
What this means, observable in 2023, is an even stronger polarisation between winners and losers, between discounters and high-end retailers, between differentiators and ‘me-too’s, between essential and non-essential. The squeezed middle will face higher debt servicing costs, a loss of market share, possible acquisition by larger rivals or – ultimately – even extinction.
As retail consultant, Mauren Hinton, said: “Retail demand may be stabilising but costs are increasing, squeezing profits. Consumers, who are also dealing with higher costs, are remaining selective in their spending, so retailers will need to deliver compelling offers, backed by strong finances, to succeed in 2024.”
For consumers, Hinton continued: “Price inflation slowing down and higher earnings, coupled with a strong labour market, will help to offset some of the higher housing costs consumers are experiencing, mortgage rates and rental increases in particular.”
