Skip to content

Retail Think Tank

Falling demand and rising costs will make 2024 another challenging year

  • Weakening consumer demand likely to continue into Q1 24
  • Difficult Q1 24 will be the lull before the storm of Q2 24 when a tsunami of costs will hit the sector
  • Widespread promotions and discounting will continue after Christmas

18 DECEMBER 2023 — London, UK – Falling consumer demand combined with a barrage of rising costs is set to create a challenging six months ahead for the retail sector – according to the latest assessment by KPMG/RetailNext Retail Think Tank (RTT) members.

With early indications of a disappointing  Christmas trading period for some retailers, particularly in non-food categories, and food retailers resorting to increasing the level of promotions in order to drive sales this year, there will be very little respite for the retail sector as it enters 2024, according to the latest KPMG/RetailNext Retail Health Index (RHI).

Setting the scene for the challenges that lie ahead, the RHI, which assesses the state of health of the UK retail sector by considering the three key drivers of demand, margin, and cost, concluded that beleaguered consumers will hit the pause button on spending even further in the opening months of 2024.   Despite having more money in their pockets than they did in Q1 23 due to reductions in National Insurance Contributions, wage growth outstripping inflation and lower fuel bills which has helped to boost household income slightly year on year, consumer sentiment is likely to remain low as the mood music around an ailing economy impacts their willingness to spend, the RTT concluded. 

The RHI has recorded a deterioration of retail health every quarter since Spring 2022 and this is predicted to continue in the first half of 2024, hitting 66 points by the close of Q1 24, a figure last seen in the height of the pandemic in 2020 when the UK was in lockdown.   While the opening months of 2024 are likely to see a continued downturn in consumer demand, especially in non-food categories, it is just the calm before the storm as Q2 24 will see the sector hit by rising costs, including a hike in the minimum wage and a 6.7% business rate increase for most retailers. While demand is likely to pick up in Spring 2024 (Q2 24) as consumer confidence builds, rising costs will hit retailers, particularly those whose finances are not stabilised RTT members concluded, signaling potentially higher insolvency rates for small retailers and a boost in M&A activity – particularly in fashion and pure online retail, where there will be pressure on consolidation.

Highlights from the KPMG/RetailNext Retail Health Index included :

With household financial assets outweighing financial liabilities by £4 billion, the ability to spend will be polarised between households

·        Savers enjoying higher interest rates are unlikely to be tempted to spend savings in early 2024

·        Health and beauty are expected to be the only non-food category to see growth in the opening months of 2024

·        Luxury retail and big-ticket categories will continue to experience a downturn in sales

·        Sales growth for the big supermarkets in 2024 is likely to be more subdued, with the boost from grocery price inflation dropping away and pressure on volumes continuing

·        Growth in 2024 will come from the discount and value retail channels

·        London retailers face a ‘double whammy’ of rising business rates given the bulk of London’s retailers are multiples, and the fact that business rates in London are significantly higher than in the rest of the UK

·        Further promotional activity is expected as retailers look to clear down excess stock and react to falling consumer demand

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

“Despite Black Friday sales going deeper and lasting longer than last year, indicators so far are that Christmas trading this year has been one of the worst since the pandemic hit, and although there is still all to play for in the final weeks of December, it is looking as if it’s too late turn fortunes around.   Whilst food retailing sales growth has been weaker than seen over Christmas last year, sales of non-essential goods have been deteriorating rapidly and will continue to do so as consumers keep an even tighter grip on the household purse strings.

“It has taken a long time for the economic challenges to feed through to consumer resilience, but it looks as if it’s happening now, and is set to stay with us, at least until spring.  The UK retail sector will likely continue to see significant downward pressures on demand, and margin, for the early part of 2024 but this could turn a corner by April, just as hefty increases in minimum wage and business rates hit the bottom line.  Retailers will be holding their breath for some good news in the Chancellor’s Budget in March.

“Retailers have been remarkably resilient over the last few years and are now well versed in being agile to cope with economic shocks and changing consumer demands. Pressures on consumers from high inflation may be easing, but the economy faces headwinds from the lagged impact of monetary policy tightening and rigid fiscal policy settings.  For the next few months, we expect the retail sector to continue to tread water as it moves from dealing with one shock to another.”

Retail Health Index 2006 to 2023

Good news for bargain hunters as promotions set to run and run

The RHI recorded an increase in promotional activity throughout Q4 23 with Black Friday sales starting much earlier, going deeper, and continuing well into December.  Both food and non-food categories had more promotions in Q4 23 compared to last year, with food promotions at the highest level seen in two years, combined with a push from the supermarkets for non-inflation-driven growth via loyalty schemes. Investment in loyalty programmes forces competitors without a scheme in place to keep prices lower in order to compete and pressure on margins will continue through the early part of 2024.

With demand muted in the run-up to Christmas, many retailers are running promotions to help clear down excess stock. Whilst retailers appear to be more strategic with their discounting, consumers have been equally savvy, preferring to limit their spending and potentially waiting for even deeper discounts to come as we move toward Christmas day itself.

For many food retailers, the quest to gain shopper loyalty looks set to intensify in 2024 – leading to continued promotions to attract bargain-hunting consumers, price matching, and price locks look set to stay for at least the first half of 2024. 

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

“Despite retailers throwing everything at longer, deeper Black Friday promotions this year, footfall was down nearly 2% on last year. The lower demand environment is likely to signal a much higher promotional environment in 2024, as retailers fight for sales.

“Whilst promotions are fundamentally margin dilutive, retailers have done some great work in re-engineering supply chains to make them more cost-effective, which has given more room to push ahead with discounting.  The strongest retailers woke up to the cost-of-living crisis a long time ago and have done a great job in engineering products and pricing architecture to maintain margins. However, as we head to April there will be less room for manoeuvre and retailers will need to sell product as close to full price as possible to offset the much higher cost environment.”

How the RTT scored Q4 23 and Q1 24

What the RTT members said :

Jonathan De Mello, Founder & CEO, JDM Retail Ltd

Moving into 2024, with residential rents continuing to increase, more and more fixed-rate mortgages running out and inflation staying relatively high, the first two quarters of 2024 at least will likely see lower consumer demand and a concurrent impact on retail sales and margins.”

James Sawley, Head of Retail & Leisure, HSBC UK

“We’ll see less distress in 2024, as many small businesses gave into the conditions of 2023, characterised by high inventory levels (low cash), peak inflation, peak energy cost and the rising cost of capital. We now have normalised inventory, low freight costs, falling inflation, and a clearer idea of where interest rates are settling, as well as an extension in business rates relief.  We are likely to see consolidation in some segments of the sector where high costs, intense competition, and softening of demand will make it a compelling or necessary move”.

Nick Bubb, Retailing ConsultantBubb Retail Consultancy Ltd 

“Q4 23 saw a lacklustre performance with volume pressure in non-food categories and the real sense that consumers are tightening their belts.  Whilst a lot depends on what we see happen over the next few weeks, there has already been a lot of discounting and this is likely to continue after Christmas as well. As for the outlook for the retail sector in general, much will depend on when the Bank of England feels able to start to lower interest rates, to relieve the pressure on “big ticket” spending, although this is unlikely to be before the second half of 2024.”

Maureen Hinton, Retail Consultant

“With costs rising and consumers remaining selective in their spending, retailers will need to deliver compelling offers, backed by strong finances, to succeed in 2024.”

Mike Watkins, Head of Retailer and Business InsightNIQ UK

“After two years of falling volumes in food retailing, there is likely to be a return to volume growth in 2024. For many supermarkets, the quest to gain shopper loyalty – frequency of visits and total shopper spend – will intensify. The extension of loyalty schemes has helped pull back some spend lost to discounters. NIQ research shows that 54% of shoppers said that price discounts via loyalty cards were the promotional mechanic most likely to encourage them to spend with everyday low prices a close second (34%). This reinforces the need for the supermarkets to maintain transparent price strategies, price locks, and price matching.”

Miya Knights, Retail Technology MagazinePublisher and Consultant 

“With stagnant demand, 2024 will be a year of two halves in terms of retail health.  Competition is fierce and retailers will need a differentiator.   Technology investments will continue to help separate retail winners from losers throughout the year, just as it has increasingly done for over 25 years now, and at an accelerated pace ever since the pandemic.  However, where it may have previously been enough to adopt and deploy technologies that allowed operators to catch up to their competitors, those who genuinely innovate using IT and digital will succeed next year.”

Natalie Berg, Retail Analyst and Founder of NBK Retail

“As we look ahead to 2024, it’s worth calling out that whatever is thrown at retailers, they will be far better equipped to handle it than they might have been just a few short years ago. I wouldn’t suggest that 2024 will be uneventful, but I think retailers can certainly welcome more stability. The worst of the cost-of-living crisis is behind us, and although consumers have been surprisingly resilient thus far, we’re certainly not out of the woods just yet. Consumers will continue to exercise caution and restraint, leaving retailers to contend with somewhat muted demand, heightened expectations and cost pressures of their own – from business rates to hefty increases in minimum wage requirements from April 2024.”

Charles Burton, Director, Oxford Economics  

“Despite further falls in inflation and, from the middle of the year, the Bank of England potentially starting to reduce interest rates, we expect the UK economy will struggle to gain momentum in 2024. Household spending generally will only grow slowly, and likewise retail sales. There will be some variation across the UK, with the south (London, South East and South West) performing better than average, with the Midlands, North East, and Scotland faring less well. This is very much a reflection of job losses in the industrial sectors feeding into overall regional performance.”


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 panelists 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:

  • Natalie Berg – retail consultant and author
  • Nick Bubb – Independent Retail Analyst
  • Charles Burton, Director, Oxford Economics
  • Jonathan De Mello – Founder & CEO, JDM Retail Ltd
  • Maureen Hinton – Retail consultant
  • Miya Knights – Retail consultant, author, and publisher of Retail Technology Magazine
  • Paul Martin – KPMG
  • James Sawley – HSBC
  • Mike Watkins – NIQ UK
  • Gary Whittemore, Head of Sales, EMEA & APAC at RetailNext

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 Performance in 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 a 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 RTT aims 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 includes 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.