30 Jan 2023

Consumers remain creatures of habit

As the Christmas reporting rollercoaster comes to an end, Simon Hockridge takes stock on the retail sector and the themes that emerged.

Simon Hockridge

There is a collective holding of breath amongst the retail community during ‘Crimbo Limbo’ as we await any unscheduled updates from retailers who may have experienced a nightmare before Christmas. Anticipation was heightened this year given the backdrop of a brutal cost-of-living crisis driven by spiralling energy costs and high inflation.  

But, as Next’s announcement during the first week back confirmed, the concerns were somewhat unnecessary.       

ONS data, which reported a 1% fall in retail sales between November and December, disguised unexpected resilience among UK consumers, something which has been borne out by retailers through this busy reporting period. The slew of trading updates throughout January unveiled a remarkable level of positive news when many had expected a bloodbath of profit warnings.  

Simon English, financial editor at the Evening Standard, made a surprising calculation that underlines the disconnect between macroeconomics and what many businesses are reporting. According to his – self-confessed back-of-an-envelope – maths, across all sectors there were six profit upgrades for every profit warning.  

There are various factors at play here, and not all demand led. For example, as we drift away from peak inflation, retailers are starting to gain more certainty over some key cost lines such as freight, wages and utilities, providing greater visibility and the ability to operate and trade with renewed confidence.  

But shoppers also shopped, bringing some surprising trends. In a world convinced that the pandemic had sounded the death knell for physical retail, it was the shops rather than online where many of the strongest performances were found.  

There are some extenuating circumstances. Royal Mail strikes weakened confidence among customers that their online-bought gifts would arrive in time for Christmas. The colder weather also dragged forward the sale of jumpers and warm clothing for the apparel retailers.  

Nevertheless, at the heart of it lies a creature of habit. A consumer who – in many instances – still wants to touch, feel and experience a product before purchase, particularly if it is to be imminently unwrapped by a loved one. 

Online’s speed and convenience has changed the world of retail forever, but it seems we cannot be persuaded to abandon the high street altogether, and there is somewhat of a ritual to be enjoyed (or endured) by trudging the pavements from shop to shop on a cold December morning.  

Still, the industry cannot get carried away. Whilst the trends are more encouraging, inflation remains at a very high level and consumers continue to face a gloomy outlook, made worse for some by the prospect of remortgaging in a world of higher interest rates. The halo around the Christmas reporting season is also somewhat punctured by data showing that credit underpinned spending for a high proportion of customers.    

So it remains undeniably tough for the consumer and, as we move towards February, the question now turns to the sustainability of demand. Greater visibility will help the industry as a whole, but now – more than ever – it will be those offering true value and a distinct proposition who will remain in the winner’s circle – and not just for Christmas.    

Simon Hockridge is managing director in MHP Group’s Capital Markets division. He has over 15 years’ experience in strategic communications, specialising in the Consumer sector. 

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