“Christmas and the Cost-of-Living Crisis: How will retailers cope?”

The past two year’s holiday seasons were tough for the UK’s retail sector, with lockdowns and resulting changes in consumer behaviour. I covered the previous Christmas periods in two pieces for the Economics Observatory (2020 and 2021) and followed this in the summer of 2022 with a look at the impact of the cost-of-living crisis on retailing. All my Economics Observatory pieces can be found using the links here.

I was recently asked to take a look at the impact of the cost-of-living crisis again but in the light of the 2022 Christmas season for retailers. The post was put up on the Economics Observatory on Wednesday 14th December and can be found here. As always, reading the full post there is the best, and I will only give a flavour of the content here.

The UK’s retail sector has seen a wave of problems emerging throughout the year. Optimism in early 2022 that the worst effects of the pandemic might have subsided has given way to pessimism about trading in the wake of deteriorating economic circumstances.

Russia’s war against Ukraine has sparked a cost of living crisis. Retailers were already having to cope with difficulties in supply caused by Brexit, Covid-19 and global shipping disruptions. This combination of challenges has meant that the smooth movement of products around the world has been replaced by uncertainty, volatility and cost increases. Brexit, for example, has significantly driven up the price of food in the UK.

Source: ONS

Consumers have seen inflation rise rapidly, notably in food. Hikes in the Bank of England base rate have increased the cost of borrowing for both retailers and consumers. Mortgage rates have also risen, and the Bank has indicated potential further increases, with inflation set to remain high for several months. The Office for Budget Responsibility (OBR) has said that the UK is already in recession and will remain so until 2024. What’s more, we are seeing the worst drop in living standards since records began.

These are very unusual times for retailers and there is virtually no managerial expertise of similar circumstances on which to draw. Inflation is at a 40-year high, while consumer sentiment is around a 40-year low. At the same time, supply certainties have been broken and interest rates are at their highest level in 15 years. High street retailer Marks and Spencer has described the situation as ‘the gathering storm’ for shops. This confluence of issues has not been experienced by retail managers and operators in a generation.

The problems that retailers and consumers have faced over the past year have already resulted in notable changes to purchasing. There has been a long-run slowdown in the volume of products purchased in retail as consumers have seen their budgets shrink. The price of Christmas basics such as mince pies, Christmas puddings and Christmas chocolates are increasing above the average rate of inflation.

Source: ONS

Given the widespread nature of the economic issues affecting the country, it is tempting to think that everyone is struggling and suffering in the same way. But this is not the case. It is hard to see how the most well-off in society are affected. There is money around and people are willing to spend. During the pandemic, sales and spending patterns were disrupted and those with money saved more.

At the other end of the financial spectrum, people are really struggling. The use of food banks has soared. The development of ‘warm banks’ points to other problems with affording basic needs. Food inflation is outstripping broader measures, and this affects lower-income families more as a greater proportion of their income is spent on necessities. More people are being drawn into difficulty and struggling to get by. There is also evidence that the cost-of-living crisis is exacerbating health inequalities, driven mainly by income and poverty.

So will it be a good Christmas?

As with every Christmas season, there will be retail winners and losers. There is money around (for some) and people want to have a good festive time. But the wider economic pressures mean that this will not be the case for all. In simple terms, retailers are in search of consumers with money, and consumers will be looking for retailers with the right products at the right price. This is the essence of retailing and not every business will be able to get it right all the time.

Over the festive period and beyond, we should be concerned about the increasing disparities among people and places, and their experiences. These gaps are widening, and the consequence of this turbulent year has been to accelerate the differences. But retailers and their shops will be trying their very best to ensure that all consumers can get products that they want for Christmas, whatever their circumstances.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Education and Students and a Fellow of the Royal Society of Edinburgh
This entry was posted in Aldi, Brexit, Christmas, Consumers, Cost of Living, Costs, Discounters, Economics Observatory, Energy Costs, ESRC, Food, Food Retailing, Inflation, Lidl, Market Shares, Places, Retailers, Retailing, Shopping, Towns and tagged , , , , , , , , , , , , . Bookmark the permalink.

1 Response to “Christmas and the Cost-of-Living Crisis: How will retailers cope?”

  1. Pingback: 2022: the stirlingretail.com year in retrospect | Stirlingretail

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