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After a tough Christmas, how can retail survive the cost-of-living crisis?

 (ES Composte)
(ES Composte)

For retailers, the festive period serves an existential function. The entire sector’s evolution has been shaped by this annual event – the period before hibernation when it must eat well to survive the cold of winter. An already demanding situation, the pressure on retail’s performance this Christmas grew due to the grim foretelling that typically low consumer spending in January would be further limited by the squeeze on disposable incomes, ever-present throughout the cost-of-living crisis.

The latest figures from the ONS provide no comfort. While the headline of a 3.8% increase in sales values compared to last year may appear a win for the sector, this number is dwarfed by inflation, revealed to have stood at 10.5% in December. Summarising, inflation-adjusted sales volumes were poor this Christmas, falling by 5.8% year-on-year.

Food fared comparatively well, despite sales volumes falling by 0.3% in December after rising by 1.0% in November. Many expect this was due to customers spreading the Christmas food shop over two months. Indeed, M&S reported a 10.2%  increase in sales for the thirteen weeks leading up to the new year. However, this appears far less exceptional when reasoned with the circumstances presented in December 2021: with the Omicron variant rife, it was the year of smaller festivities as many avoided large gatherings in the hopes of eating turkey around the table. Food sales were naturally higher in the year when we could finally spend Christmas together again. Yet, such a realisation also exacerbates the dismal performance of overall sales volumes this year.

Ultimately, this Christmas marked the 9th consecutive month in which retail sales fell in real terms compared to the previous year. It was the full stop on a difficult year in which 150,000 retail jobs were lost and 50 stores shut their doors each day.

Despite a dismal analysis, the eulogy for retail has not yet been written. Nonetheless, the beginning of the new year provides little cause for celebration. January is a month notorious for tightening of the purse strings, yet with inflation still in double-digits, disposable incomes have all but diminished, compounding the challenges of an already difficult month.

Meanwhile, the mass migration of shoppers from in-store to online defies a sector still dependent on the storefront to convey brand identity and association. Plummeting footfall, 7.2% lower this Christmas compared to last according to Springboard, will be further impacted by a Britain beset by large-scale industrial action. As parents stay at home to look after strike-absented children, employees work from home to avoid transport complications, and patients face delays in a struggling healthcare system, the effect on the storefront is available for all to see.

The cost-of-living crisis has caused more damage to the national mood than a pandemic ever could. There can be no escaping the fact that Britain is now a troubled soul. Such a realisation, so tied to emotion, fails to predict a quantifiable impact on the retail sector with any accuracy and yet it takes no genius to recognise that the beginning of 2023 presents retail with fundamental challenges.

Retail has entered the era of survival of the fittest. As well as consumers, the sector faces rising costs, but it must be retailers who absorb the largest impact. To pass on soaring overheads to customers would risk cutting off the hand that feeds and outpricing products from target markets. Additionally, brands must ensure that product development reflects overall identity, guaranteeing that products meet the needs and expectations of those who have sought them out.

In short, retailers must remain laser-focused on the perennial p’s that have driven their success thus far – product and price. Draining disposable incomes leave no room for error; misguided product development and pricing failure will estrange retailers from otherwise loyal customers.

Understanding how to satisfy these needs will be dependent on customer insights and a wider understanding of market movements. Product-level shopping data will unlock this ability, allowing retailers to compete with more supportive products at fair prices.

Those looking to survive the cost-of-living crisis must be aware that the race for customer insight is on, yet information must be well adapted, informing products that satisfy consumer need with an inclusive price point.

Mohsin Rashid is the CEO and co-founder of ZIPZERO, and app which earns users cash to pay bills.