Taking Stock 2024 - UK Retail & Consumer Trends
5 Minute Read
Our report 'Taking Stock 2024 - What's in store for UK retail and consumer' (produced in partnership with CMS) looks at the outlook for retail and consumer in 2024 and trends to watch in 2024 and beyond.
Below are some exerts from the report, download the full report to access even more insights and data.
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What can you get from this report?
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A deeper understanding of the outlook for 2024 UK retail and consumers
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High-level information on key trends for UK retail and consumers in 2024 and beyond
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A understanding around how the events of the past year have affected UK retail and consumers
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A better understanding of UK consumers
Contents:
Introduction
In 2024, the retail sector continues to be characterised by uncertainty, opportunity and transformation. This report explores current challenges and shifting consumer behaviours, pivotal to shaping the trajectory of the industry this year and beyond.
The backdrop of heightened geopolitical tension, interest rate hikes, and the echo of pandemic-induced impacts has resulted in a more complex trading landscape. Amidst the turbulence in recent years, the resilience of the UK’s consumer-facing sectors has been a testament to the adaptability and innovation within the industry.
Insights contained in this report outline the key themes, opportunities and challenges that lie ahead in 2024. From the nuances of the cost of living crisis entering its second phase, to the anticipation of modest economic growth, this report sheds light on wage, inflation and confidence dynamics, set to shape consumer spending throughout 2024.
Furthermore, it highlights three of the most important areas for many businesses to focus on in the form of “Megatrends” - sustainability, generative AI, and geopolitical shifts.
Collectively, these trends underscore the importance of strategic adaptability and technological integration for businesses aiming to thrive in this era of change.
The report features the following sections: (1) the macroeconomic backdrop; (2) the retail and consumer outlook; (3) Megatrends.
Section 1: The macroeconomic backdrop
The economic outlook continues to remain uncertain, although significant opportunities lie in many untapped areas. Heightened geopolitical tension, a general election, and decade-high interest rates cloud expectations. Nevertheless, both businesses and households feel more confident than last year as cost of living pressures ease, and the cycle of rising interest rates appears to have reached a peak.
Disruption over the past four years has shown the resilience of consumer-facing sectors as businesses grappled with a pandemic, geopolitical instability, and a wave of rising costs. In 2024, resilience will continue to be tested amid a more complex economic environment with easing inflation masking financial pressures brought about by elevated borrowing costs.
Having surpassed its pre-pandemic GDP by nearly 2% in mid-2023, the UK slipped into recession in late 2023. The cost of living crisis has essentially entered a second phase as the impact of higher interest rates widens the scope of those impacted, capturing more middle and higher income households exposed to mortgage renewals at much higher rates.
Despite official forecasts suggesting an uptick in real incomes for 2024, key household groups of consumer spending like aspirational Millennials, face the brunt of earnings failing to keep pace with rising housing costs, further straining budgets.
The following section explores three critical themes that will shape consumer spending in 2024:
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Evolving wage and inflation dynamics
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The cost of living crisis - phase 2
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Lack of confidence supressing spending
Evolving wage and inflation dynamics
The transition of inflation drivers from external to domestic factors (particularly through nominal wage increases) underscores the tight labour market’s impact on shaping expectations. Workers are capitalising on job openings that remain above pre-pandemic levels to negotiate higher wages, partially offsetting heightened living costs.
However, the job market for 2024 is tempered by high interest rates, meaning slower wage growth and an increase in unemployment over the next year. A modest rise in real income growth for the average household of less than 2% through 2024/25 is unlikely to fuel a consumer-led recovery. Overall, the combination of fragile consumer confidence, rising unemployment concerns, and varied spending behaviours at different life stages will likely curb retail spending.
Economic markers show the worst of the cost of living crisis has ended. Following 20 consecutive months of falling spending power, real incomes rose in the final quarter of 2023 and are predicted to remain in positive territory throughout 2024. Granted, 2024 promises just a marginal relief to household finances, but consumer confidence has risen, albeit remaining in negative territory.
However, there is still some way to go. After enduring over a year of real income declines between late 2021 and mid-2023, a complete recovery of personal finances to pre-pandemic levels remains challenging. Anticipated hurdles lie ahead in achieving the target inflation rate of 2%, with projections indicating the rate will be just above 2% in the summer, followed by an ascent to around 2.75% by the year’s close. These fluctuations are poised to be shaped by factors such as energy price increases and yearly comparisons.
(Download the full report for the rest of this section)
Section 2: The retail and consumer outlook
The retail landscape is poised for a year of recalibration in 2024.
This involves the tempered impact of inflation, more uniform performance across product categories following post-pandemic distortions, and a convergence of in-store and online retail experiences.
For many businesses, the key to success lies in understanding the evolving needs of consumers, particularly among affluent demographics, while adapting to the needs of aspiring Millennials under pressure. Retailers that adapt to how their customers shop can expect a competitive advantage. This adaptation includes exploring new markets, forging strategic partnerships, and potentially engaging in mergers and acquisitions to bridge gaps in offerings and capabilities.
Evolving spending behaviour
The backdrop for consumer spending in 2024 presents greater optimism compared to lows in 2023. Despite enduring cost of living challenges, there’s an overriding sense that the worst has passed. Yet, the landscape remains divided, with spending intentions likely to be uneven across retail categories. This sees affluent consumers poised to drive an uplift in sales volumes, particularly in essentials and selected discretionary categories outside of retail (e.g. holidays that were stunted during the pandemic). In contrast, middle and lower-middle income households, burdened by escalating housing costs, are expected to exercise restraint, particularly across non-essential retail spending.
Consumer behaviour is ultimately shifting towards smarter spending decisions, moving away from outright cutbacks during peak inflationary periods. The advent of discount retailing and more diverse shopping options have helped households navigate financial pressures – not by stopping consumption, but by seeking cost-effective alternatives and spreading expenses. As inflationary pressures recede and prior spending adjustments solidify into habits, the impulse to switch retailers in pursuit of value may diminish, albeit remaining a significant consideration for many.
Increasingly, consumer brands and retailers are relying heavily on discounting and other types of promotions or sales tactics in order to maintain sales. Not all are doing so in a legally compliant way. In some cases, this may be by choice, due to the benefits of non-compliance outweighing the enforcement risk, whereas in other cases it may be because the relevant laws are complex or cumbersome to navigate and comply with (particularly where a retailer sells thousands of products and pricing and promotions change frequently).
However, pricing issues are increasingly on the radar of UK regulators. In particular, the CMA is concerned that the design, structure and/or function of online interfaces (such as websites) may mislead consumers, for example misleading price reductions and the use of urgency tactics such as countdown timers where in some cases, the timers simply reset when the time expires and the offer continues on the same terms.
The CMA investigated three businesses (Emma Sleep, Simba Sleep and Wowcher) in relation to these kinds of practices. In the context of the Simba Sleep investigation, Sarah Cardell, Chief Executive of the CMA, commented in December 2023: “Discounts are a great way for firms to attract customers, but they must represent a real saving. We’re concerned that firms in the mattress sector and perhaps more widely could be using price reduction claims in a way that could mislead shoppers.”
There is also government and regulatory interest in other aspects of pricing, including:
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Unit pricing (where the price per “unit” (e.g., kilo or litre) for goods must be displayed), due to various concerns including that the existing rules are not clear and consistent, and some retailers do not show the unit price in relation to promotional prices (e.g., for loyalty scheme members); and
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So-called “drip-pricing” (where extra costs are “dripped” to the consumer as they proceed to purchase an item).
In early 2024, the Government announced that it plans to update the existing rules in relation to unit pricing, and regulate drip-pricing by prohibiting traders from displaying a headline price that does not include all fixed mandatory fees or disclose the existence and calculation of variable mandatory fees (such as delivery fees).
The drip-pricing provisions will likely be included within the Digital Markets, Competition and Consumers Bill, which is currently going through Parliament, and, with cross-party support, seems set to become law later in 2024 regardless of a likely general election. This Bill also includes significantly more stringent enforcement provisions, including GDPR-style fines of up to 10% of global, annual turnover for businesses that do not comply with consumer law. If the Bill is passed, engaging in non-compliant pricing practices would have a significantly greater enforcement risk than today.
(Download the full report for the rest of this section)
