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How the retail sector has bucked the economic trend review

  • 01/02/2023
  • Paul Atkinson

Review of how the retail sector has bucked the economic trend

Expectations for the Christmas 2022 Trading outcomes were not particularly optimistic, given the biggest cost-of-living crisis in a generation, spiralling energy costs, financial insecurity, and shifting buying trends.

Despite the sector's difficulties, the future is nevertheless bright. New technologies deliver more immersive online experiences, and consumer behaviour drives exciting product and business innovation. The world's largest brands are engaging with the most pressing issues confronting our society and planet, which are resonating with their customers. 

The retail industry has always been tenacious in the face of adversity, and we do not doubt that firms will emerge stronger.

So, how has the UK retail sector seemed to defy the odds and emerge so successfully from this vitally important quarter in a business's financial calendar?

The retail market is expanding due to increased spending on furniture and appliances.

Despite the economic and political uncertainties caused by Brexit, the UK homeware market grew somewhat over the review period. Most product categories, including Home Furniture, Home Textiles, and Home Appliances, have shown year-on-year increases in the number of transactions due to increased home consumption.

As most consumers have moved to work-from-home practices, homeware market items, mainly Home Decor Products and furnishings, have captured consumer interest owing to shifting to work from home more regularly.

To address the demands of customers in the living spaces, companies in the homewares sector have used novel marketing, retailing, and merchandising tactics. They have also collaborated with merchants in recent years to broaden the reach of their products for customers in the homewares industry to offer a fully rounded service proposition.

This year, more merchants and brands will join forces on a grander scale to build brand distinctiveness and solve society's most urgent issues, such as plastic waste, recycling, and climate change.

This rise in demand for home office furniture, textiles and small kitchen equipment, home décor goods, lighting, and bathroom accessories will continue throughout the next quarter.

Some of the big winners in the retail

  • IKEA – up 13%
  • M&S – sales up over 9%
  • Sainsbury's – up 7%
  • Tesco - up 6% 
  • Aldi  - up 26th 
  • Lidl – up over 24% 

With Aldi & Lidl, this list indicates that, as the public purse becomes increasingly stretched and value for money becomes more important, customers are driven by competitive pricing.

Customers returned to the high street at Christmas.

As Covid restrictions were lifted, the general population slowly returned to physical stores. According to British Retail Consortium (BRC) data, retail traffic increased 15% year on year in December, with footfall in high streets increasing 20% and shopping malls increasing 13%.

OUTLOOK: How has January 2023 been for the retail industry?

As we move out of the festive period, consumer demand will slowly rebound. Indeed, the recent railway and postal strikes will have been another unwelcome headache for the retail industry to overcome. Rising inflation, increased mortgage repayments, and spiralling energy costs indicate less spare cash for consumers, creating a significant challenge to the industry. Without question, the prognosis for insolvency remains difficult.

Ethical shopping and a competitive market are prompting retailers to diversify and enter whole new industries to utilise their assets better and discover recent retail trends and sources of revenue. 

The following year, retailers and brands will work together on a larger scale to generate brand distinctiveness and address society's most pressing challenges, such as climate change. Zara owner Inditex to double the number of disabled employees in the next two years, Curry's launches nationwide 'Quiet Hour' to support neurodiverse shoppers IKEA is a significant expansion priority for Ikea and is delivering solid sales right now as shoppers invest in their homes post-pandemic.

Brent Cumming, MD at Let's Talk Credit, says: "We held our first Forums of 2023 on Tuesday 17th January, hosting the BHETA Housewares and Small Electricals Credit Risk Forum, followed by the BHETA DIY and Gardening Credit Risk Forum in the afternoon."

"We heard an upbeat trading update from the BHETA members, including Michael Millns from AON Credit Insurance, insolvency updates from Christopher Harding at PwC, with CoCredo providing company Dual Report intelligence throughout the meeting. Which, on the whole, was a resilient message – many had experienced better-than-expected Q4 results but were cautious regarding the start of the year. Positives were firm orders and general shipping prices going down, but headwinds of increasing energy costs and cost pressures cancelling any gains. 
Some members saw a general slowdown and few short-term payment plans to assist with cash flow – as customers struggled with energy pricing and interest costs. Expect H1 to be challenging, but H2 should be more positive, with some prices expected to come down, such as energy and inflation. "

"All eyes will be on our next meetings in April, where the members will again give their update to the group!"

Dan Hancocks, CoCredo CEO, says: Many retailers are beginning to understand and react to the fact that the sector is undergoing significant changes. However, there is a definite need to balance technology with a genuine and personalised customer service experience. To sustain growth, we should maintain a delicate balance between providing automation to systems and processes when convenient and offering access to an in-person service when required. However, determining the difference is a significant part of the challenge.

Suppose you are concerned about the financial health of the company with which you do business. In such an event, we can supply you with extensive UK and Ireland Company Credit report checks that generate comprehensive, dependable, and crucial company credit check information, giving you the confidence to safeguard your organisation from potentially devastating financial threats.

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Laurie Beagle, MD, Forums International, says: "Our team at Forums International, who run Credit management and industry sector forums, regularly seek feedback from members across various sectors and is a good barometer of current challenges and opportunities. The initial feedback has been that 2023 has started with a "bang" and that business is very brisk even when they thought people were taking an extended new year break. The signs are good, but there is uncertainty that it will last, as the issues we had in 2022 regarding the impact of the war, energy prices, and inflation are still there.

Consistent throughout 2022 and going into 2023, the main challenge at the coal face will be the recruitment and retention of staff. Additionally, many members need help directly contacting AP teams, thus impacting cash flow and other metrics. Working in the office five days a week is now long gone; 3-day weeks are the new norm. Also, email seems to have taken over from face2face and telephone conversations.

Some good news is the number of members is reporting increased focus and expenditure on widening their risk management toolset and are either in the process of or planning on technological improvements. Many of the challenges that Credit teams overcame in 2022 are still around, and new ones may emerge. 

Still, overall, it only proves the resilience of most Credit teams and increasing awareness within a business as to the critical role good Credit Management plays in a company's success – and long may it continue!"

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