The high street could face a “flurry of business failures” in the new year, as a lacklustre Christmas sales period is leaving retailers low on the funds needed to cope when households tighten their belts after the festive season.
“We can expect more consolidation and high street casualties as we head into the new year. It will be yet another tough year for retail and a case of survival of the fittest,” said Paul Martin, UK head of retail at KPMG.
In its monthly report, the Retail Think Tank, a partnership between KPMG and Ipsos, forecast the opening quarter of 2023 would be the most challenging of the year ahead, but said there would be winners and losers with some retailers – such as discount chains – likely to fare better than others.
The thinktank’s predictions come after the volume of retail sales unexpectedly fell in November as Black Friday discount deals and football’s World Cup failed to boost spending, with the cost of living crisis forcing households to cut budgets.
“Rising inflation, rising costs and flattened sales all took their toll on the health of the sector,” Martin said.
The amount spent on retail in Great Britain dropped by 0.4% in November, against a forecast of a 0.3% rise by industry analysts, according to the Office for National Statistics (ONS).
Online retailers suffered a 2.8% fall in the amount sold as shoppers steered clear of Black Friday offers to focus on stocking up early on food and alcohol to spread out the cost of Christmas.
“The fact that not even the World Cup and Black Friday Christmas shopping could produce an increase in sales will come as a major disappointment to retailers, especially considering the increase last month,” said Lynda Petherick, the retail lead at Accenture UK and Ireland. “The festive season could well be the last hurrah for consumers as the new year will likely see them tightening their belts further, so retailers need to be doing all they can to make the most of this period.”
The KPMG/Ipsos Retail Think Tank agreed that the new year was likely to be tough saying inflation had already meant there had not been the usual splurge in spending on groceries at this time of year.
“Despite inflation hitting lower income households the hardest, consumers across the board will become more considered with their spending as the year opens, which will have an impact on demand,” Joe Marshall at Ipsos said.
Spending on clothing and footwear has unexpectedly held up, according to figures out on Friday from building society Nationwide – perhaps as shoppers equip themselves for the cold snap andexploit sales to buy early presents.
Its figures pointed to a 9% rise in the amount spent on fashions and footwear, in November although a large part of that will be down to inflation. Spending on dining out was also up year-on-year but was down on October – an unusual pattern – as cash-strapped consumers attempted to channel their resources towards Christmas presents.
The ONS said that while Black Friday, which fell on the 25th of November this year, failed to delivers on spending, some businesses benefited from an extension of the sales promotion period.
Those figures tally with the ONS’s finding that department store sales volumes rose by 1.7% month on month and sales volumes at household goods stores, such as furniture shops, rose 4.4% as offers over the whole month of November paid off. Clothing stores also reported a 2.1% sales boost last month, mainly because of strong growth at footwear retailers.
“Department stores and household goods shops did report increased sales, with these retailers telling us a longer period of Black Friday discounting helped boost sales,” said Darren Morgan, a director of economic statistics at the ONS.
However, overall nonfood store sales volumes fell 0.6% because of steep falls in sales ofsecondhand goods and at computer stores. Food sales volumes still remain 2.9% below pre-pandemic levels as shoppers keep a watchful eye on spending with inflation at a four-decade high.
“Individuals are having to spend a larger proportion of their incomes on essentials like food and gas bills, which means there is less left over to spend on nonessential items, with consumers cutting back on clothes and fuel spending,” said Victoria Scholar, the head of investment at Interactive Investor. “It looks like it could be a Christmas of cutbacks for many families this year, while on the flipside, retailers desperately hope for that much-needed seasonal festive boost to spending.”
