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Retail Think Tank

Resilient consumers continue to prop up retail health, but willingness to spend could be coming to an end warns Retail Think Tank

20th July 2023

Stronger than expected consumer demand in Q2 (March – June) helped to minimise the decline in retail health. However, this resilience could start to tail off by the end of Q3 (July – September) as consumers batten down the hatches when the kids go back to school and focus on getting through the winter ahead, according to the latest assessment by KPMG/RetailNext Retail Think Tank (RTT) members.

Consumer demand levels remained flat in Q2 helping to offset the rising cost and margin challenges facing retailers as they battle rising wage bills and margin dilution as a result of an increasing reliance on promotions designed to drive footfall and clear down excess stock. Retailers have been working hard on margins, with more investment being ploughed into this area than seen in recent times, according to the Retail Health Index (RHI).  Absorbing price rises in order to drive demand and keep prices lower, whilst trying to protect market share, is having a significant impact and weakening the overall health of the sector, with growth coming at a cost according to the RTT members.

Fragile consumer confidence levels have experienced a bounce back in recent months, driven by mild improvements in the personal financial and general economic situation, and appetite for non-essential purchases. Record temperatures in June saw consumers head back to the high street, with shoppers looking for bargains especially in health, DIY, clothing and food categories. Many consumers chose to spend pent up savings amassed from lockdown, or used credit over the quarter, which is now standing at levels last seen in 2010.  Consumers are choosing to reduce spend on leisure and hospitality treats as well, to facilitate spending in non-essential categories, the RTT concluded.

However, as we head into Q3, the outlook for consumer demand is likely to fall further with the overall RHI falling by one point to 69, a figure last seen at the end of 2020 when the UK was in lockdown. Demand and margins are expected to continue to deteriorate, whilst the cost landscape is expected to remain flat, with many retailers already having taken out substantial cost from their business and some areas like freight and logistics continuing to ease.

July and August are predicted to see stable spending as people enjoy summer breaks, however it is September that could prove to be the tipping point for the sector, after the children go back to school, with the threat of increasing interest rates impacting mortgage payers and renters, declining savings and a general battening down of the hatches, as cautious consumers prepare for winter and the golden quarter.

Commenting on the Retail Health Index, Paul Martin, UK Head of Retail at KPMG said :

“In the first half of the year, we have seen hugely resilient UK consumers keeping calm and carrying on whilst the retailers have been running to stand still.  The industry has been working hard to absorb costs and price rises, which are all having an impact on profitability, but we are reaching a point where this is no longer sustainable and rising interest rates will test the resilience of consumers who  unable to continue to prop up the health of the sector. The speed and unexpectednessby which interest rates have risen has taken many consumers by surprise, denting their ability, and willingness to spend and we could see their resilience reach breaking point as we head to the end of the year.

“While inflation should continue to fall in the coming months, it is likely to average 7.5% this year and will make little difference to the spending power of UK consumers, as income growth is lagging. There are some consumers who have not yet felt the pinch of rising interest rates, but with the mood music such that more challenging times are on the way, many will be tempted to rethink their spending habits as we head towards Christmas, becoming more selective, prioritising essentials and delaying spending on big ticket and discretionary items. Price has become the main differentiator and shoppers will become even smarter about the way they shop – looking for price promotions which will continue to bite into retail margins.  Becoming more calculated and more aware of what they are getting for their money than we have seen in the previous decade, means retailers will have to fight harder for every sale.  Both retailers and consumers are going to have to get used to doing more with less as we head into the crucial golden quarter.”

Retail health – the winners and losers

Whilst various indicators have hinted that value sales growth is up around 5% every month so far this year, it has not been an even spread across all retailers or categories, and it is likely that we could see online and high street casualties if consumer demand contracts towards the end of the year, according to RTT members.  

They concluded that electrical categories, toys, tech and home related sectors, which did well out of Covid lockdowns, have struggled to see positive sales growth this year and will continue to suffer as household incomes decline. To date grocery, health and beauty categories along with clothing retailers with strong brands and desirable product ranges have benefitted from pent up demand since the pandemic. Event led buying, such as holidays and occasions, have boosted sales, but this trend is likely to slow down as the economic conditions worsen.

Private Label growth has surged in 2023 with volumes up as branded volumes fall with unit share at an all-time high of 64% of all FMCG sales and a value share of 55% (NIQ Homescan Q1 2023). This share is unlikely to fall back, as Private Label has grown share structurally in nine out of the last 10 years, with the cost-of-living crisis simply giving a further boost to growth the RTT found.

With some data pointing to retail and leisure insolvencies up 56% in the past year, the RTT believe a downturn in consumer demand could see this trend accelerate. Whilst the larger retailers are generally trading at sustainable levels, small and independent retailersare under increasing pressure, having been hit by the twin impact of falling demand for local high streets in light of hybrid working patterns, and higher business rates. Larger retailers are not totally exempt from distress however given ever rising costs – with big high street names planning to close stores over the course of the rest of 2023.  It is likely that a small number of mid-market retailers will continue to struggle and end up in some form of process.   Multi-channel businesses are likely to continue to outperform their online peers, who achieved record growth during the pandemic, but are now struggling across most categories, as consumers warm to shopping in stores again.

The situation facing grocers is a similar one, with some performing very strongly, particularly the discount supermarkets, who are gaining more shoppers and collectively have a higher share of wallet than in 2022 as the quest for lower prices begins to replace location and loyalty as the drivers of store choice.  Whilst others, especially those not being able to differentiate themselves will struggle to maintain market share.

In addition to the winners and losers within the sector, it is likely that there will be winners and losers both geographically and by income if economic conditions worsen, with older consumers more likely to weather the storm due to savings.  Future interest rate rises will impact homeowners coming off fixed rate mortgage deals, as well as younger consumers living in rental accommodation.  London is also expected to feel a disproportionate impact given the high cost of housing in the city.

Commenting Gary Whittemore, Head of Sales, EMEA & APAC at RetailNext said :

“Retailers have been pretty resilient over the last few years and have learned to adapt and innovate to cater to evolving consumer preferences. Businesses that can effectively leverage technology – from customer analytics and data through to automation – and embrace omnichannel experiences are better positioned to thrive. Retailers should also be exploring collaborations and partnerships to achieve economies of scale and offer competitive pricing. By focusing on customer experience, retailers can differentiate themselves and mitigate the impact of inflation on their businesses with customer loyalty becoming a crucial factor. Retailers will need to ensure ever stronger customer relationships through personalisation, excellent customer service and value-added services, such as reward programmes.

“Given the scale and speed of interest rate rises, significant changes are going to be required to consumers’ lifestyles and, while much will be absorbed in ‘big ticket’ savings, such as cars and holidays, it’s expected that shoppers will cut back on discretionary purchases and opt to trade down. This will accelerate the structural shift to discounters as they continue to make gains at the expense of retailers who are neither at the sharp end of value, nor offer consumers an experience, service or point of difference that customers are prepared to pay for.”

Natalie Berg, retail analyst and RTT member added :

“With latest data from the Institute for Fiscal Studies (IFS) warning that more than a million households are expected to lose at least one-fifth of their disposable income due to mortgage costs hitting their highest levels since 2008,  the squeeze on household incomes is widening from low income to middle-income households which, had until now been largely resilient despite inflationary pressures. A strong labour market and pent-up pandemic savings have helped many to weather the storm, but this resilience will be tested as rising mortgage costs eat into disposable incomes. Therefore, retailers must brace for more turbulence as the impact of this squeeze on purchasing power ripples through the sector.”


 Note to Editors:

*RPC data on insolvencies : Insolvencies of retail businesses jump 56% in past year to hit decade high | RPC

For media enquiries, please contact: 

Emma Murray, KPMG Corporate Communications

T: 020 7 694 6506


KPMG Press Office: +44 (0)207 694 8773

About the KPMG/RetailNext Retail Think Tank (RTT) and Retail Health Index:

The RTT panellists rely on their depth of personal experience and sector knowledge, and review a comprehensive bank of industry and government datasets and include the following:

Members of the RTT are:

  • Nick Bubb – Independent Retail Analyst
  • Joe Marshall – Managing Director, Customer Experience and Channel Performance, Ipsos Retail Performance
  • Martin Hayward – Hayward Strategy and Futures
  • Maureen Hinton – GlobalData Retail
  • Paul Martin – KPMG
  • James Sawley – HSBC
  • Mike Watkins – NielsenIQ
  • Ruth Gregory – Capital Economics
  • Jonathan De Mello – CEO, JDM Retail Ltd
  • Martin Newman – The Consumer Champion
  • Miya Knights – Retail consultant, author, publisher Retail Technology Magazine
  • Natalie Berg – retail consultant and author

The intellectual property within the RTT is jointly owned by KPMG ( and RetailNext.

First mentions of the Retail Think Tank should be as follows: the KPMG/RetailNext Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.

The RTT was founded by KPMG and Ipsos Channel Performancein February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited.  The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector.  The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.

Definitions:  The RTT assesses the state of health of the UK retail sector by considering the factors which influence its three key drivers.

1.      Demand– Demand for retail goods and services.  From a retro-perspective, retail sales, volumes and prices are the primary indicators.  When considering future prospects, economic factors such as interest rates, employment levels and house prices as well as others such as consumer confidence, footfall and preferences are used.

2.      Margin (Gross) – Sales less cost of sales; the buying margin less markdowns and shrinkage.  Cost of sales include product purchase costs, associated costs of indirect taxes and duty and discounts.

3.      Costs– All other costs associated with the retail operations, including freight and logistics, marketing, property and people.

The Retail Health Index – how is it assessed?

Every quarter each member of the RTT makes quantitative assessments of the impact on retail health of demand, margins and costs for the quarter just completed and a forecast of the quarter ahead. These scores are submitted individually, collated and aggregated in time for the RTT’s quarterly meeting. The individual judgments on what to score are ultimately a combination of objective and subjective ones, drawing upon a wide range of hard datasets and softer qualitative material available to each member. The framework follows the example of The Bank of England Agents’ scoring system on economic intelligence provided to the Monetary Policy Committee.

The aggregate scores are combined to form the Retail Health Index (‘RHI’) which is reviewed at that meeting and occasionally revised after debate if members feel it appropriate.  The RHI tracks quarter on quarter changes in the health of the UK retail sector and as such provides a useful and unique measured indicator of retail health.  The index ‘base’ of 100 was set on 1 April 2006.  Each quarter, it assesses whether the state of health has improved or deteriorated since the previous quarter.  An improvement will lead to a higher RHI score than that recorded in the previous quarter, and with a deterioration leading to a lower score. The larger the index movement, the more marked the shift in the state of health. The RHI has two main benefits. Firstly, it aims to quantify the knowledge of the RTT members in a systematic way. Secondly, it assesses the overall state of health of the UK retail sector for which there is no official data.