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Retail Think Tank

Outlook for 2023

  • Profits, people and planet will be the dominant themes of 2023.
  • A challenging first half of the year should give way to a better summer as inflation eases from the current peak.
  • Changes to business rates, and an increasingly competitive online trading environment, could benefit retailers with a strong bricks and mortar offering.

At the latest meeting of the KPMG/Ipsos Retail Think Tank (RTT), members shared their views and predictions for the year ahead.

After the disruption caused by the COVID-19 pandemic, 2022 was another challenging year for the retail sector. As the UK recovered from the impact of the spread of the Omicron variant, retailers made a strong start to the year, before the shock of Russia’s invasion of Ukraine impacted global supply chains and financial markets.

By Autumn, the reality of these pressures began to hit consumer confidence and spending, putting pressure on retail’s ‘golden quarter’.

With cost pressures continuing to erode margins, retailers will need to brace themselves for a tough start to 2023 – but the challenging conditions should give way to a brighter summer if they can hold fast over the coming months.

With the UK heading towards recession, RTT members believe the UK will experience six quarters of shallow decline, rather than a deep economic crisis like that of 2007/08 or March 2020 when COVID-19 struck. Retailers will need to operate more sustainably, in every sense of the word, if they’re to successfully manage demand, cost and margin during this time.

A drop in inflation is expected to restore consumer confidence in the latter part of 2023 and slow down the decline of GDP.

Paul Martin, UK Head of Retail – KPMG, says the year ahead can be distilled into three themes – profits, people and planet. “At times it can feel like these three are tensions, pulling retailers in three directions. But the businesses that understand how to bring them together will win; those who don’t will struggle to survive.”


Soaring inflation has already led to retailers, particularly in the grocery sector, to step up their cost efficiency programmes to protect their margins. Members also cautioned against simply putting up prices indefinitely or reducing the size of their products.

Maureen Hinton, Group Retail Research Director, GlobalData Plc, said: “To survive in such a competitive environment, retailers will prioritise revenue and profit, manage costs and delay major capital expenditure where possible. That said retailers need to continue to innovate to stay ahead of demand and ensure their service levels meet customer expectations. Stealth strategies such as increasing prices of returns, product shrinkflation and skimpflation, and reducing range options while increasing private label share, will help maintain margins.”

Nick Bubb, Retailing Consultant, Bubb Retail Consultancy Ltd, agreed, adding that falling consumer demand could have a significant knock-on impact for retailers: “Credit cards bills will start to land on doorsteps early in Q1 and this could be the trigger for a decline in consumer spending, as people look to consolidate their personal finances after increased cost pressures over the winter and festive period. If consumer demand is weak, some retailers will need to promote more to maintain sales volumes.”

Members of the RTT looked at the steps retailers can take to achieve this – including consolidating M&A, identifying growth engines and evolving their business model. They also reiterated the importance of using customer insights to understand exactly what people want, rather than being led by their suppliers. In other words, they should ‘work back from the customer’.

Paul Martin commented: “Price and promotional strategies, and buying and merchandising are both important growth engines. Buying and merchandising hasn’t changed for 50 years but it needs rethinking. Customer insights need to play a much bigger role in areas such as demand planning and space allocation in stores. Online retailers will also have to review their business models, and there are likely to be some failures in this space this year particularly among the businesses that are currently over-valued following the surge in demand during the Pandemic which has now decelerated.”

Customer insights are also critical if retailers want to keep pace with changing customer demands. Mike Watkins, Head of Retailer and Business Insight UK – NielsenIQ, explained that consumer spending habits in the grocery sector are changing, partly due to the cost-of-living crisis but also due to changes in lifestyles causing the market to become more fragmented.

He added: “There’s a reset happening in food retailing which goes beyond the need to save money. Trading down to cheaper products, buying more private label, managing budgets by buying fresh food `little and often` and smaller basket spends are all changes in shopper behaviour being triggered by rising prices. This will help discounters to grow their market share to 20% for the first time. But along with price, the convenience of rapid delivery will also continue to play a role as some consumers opt for a pizza from the supermarket as their weekend treat, rather than going out for a meal so it’s an opportunity for supermarkets to grow ‘share of stomach’. More people are shopping by ‘meal occasion’, and they’re becoming more channel agnostic, choosing the one that suits them best at the time.”  

Alongside their own internal efforts to improve the efficiency and profitability of the business, the RTT pointed out that changes to business rates in April could bring greater parity between bricks-and-mortar and online-only retailers whose physical operations are based out of  distribution centres.

Jonathan De Mello, Founder & CEO, JDM Retail Ltd, said:  “Almost every type of retailer will see a reduction in their rateable value – including out-of-town malls, city centres and London high streets. Some can expect a drop in business rates of more than 30%, while some of the biggest stores on Oxford Street are looking at a 20% reduction, which is a huge saving. However, the rateable value for warehouses is set to grow by 30% – so the pure-play retailers are effectively paying an ‘online sales tax’ because they rely on huge distribution centres. Many have already seen higher rents due to the ongoing shortage of space. Retailers that have pushed hard online could be hit hard by these increases, while the high street starts to look more viable again. Property costs are likely to rise but not until the end of next year, and we could see brands favouring market towns where costs tend to be more affordable.”

As well as business rate rises for warehouses, members expect further challenges for online-only retailers as costs rise and the market becomes even more competitive.

James Sawley, Head of Retail & Leisure, HSBC UK, commented: “Despite the challenging period running into Q1 I’m optimistic that the situation will improve. Costs are coming down and the labour market will start to loosen, and there’s an opportunity for retailers who are truly service-driven to win customers.

“The online world is extremely competitive and customer acquisition via digital ads has become harder and more expensive. The cost of returns is still really challenging for online-only retailers. We are likely to see some big names in multi-channel and online-only fail in the early part of 2023.”


The RTT agreed that investment in staff will be key to driving profits and growth in 2023.

Like many sectors, retail has been hit by skills shortages over the past year, leading to concerns that remaining staff are ‘overworked and underappreciated’. The cost of living crisis – a major reason why lower-paid workers might leave the sector – has already prompted some of the big supermarkets to raise their hourly rate to support their teams as household bills soar.

As workers in other sectors go on strike over pay, and cost pressures continue to rise, retailers will need to think creatively and strategically about how they’re going to attract and retain employees. Paul Martin commented: “Everyone wants higher wages, so retailers should be clear on who they want to keep. They’ll have to think outside the box in order to attract new talent, not just on the shop floor and distribution centres but in digital and IT roles too, and think beyond wage packets.”

It is still too early to say how the labour market will evolve over the coming year – and this will have a direct impact on inflation.

Ruth Gregory, Senior UK Economist, Capital Economics, commented: “We think that the situation will feel different in a year’s time. We expect inflation to be 4% and real wages to be rising, which should increase disposable income and consumer spending. The gradual fall in inflation will probably allow the Bank of England to cut interest rates in 2024 The big unknown is how the unusual fall in the size of the labour force will play out. If the supply of workers remains subdued, then inflation might be higher than predicted.”

As well as employees, retailers must become more customer-centric – and without insights, it’s impossible to build lasting loyalty.

Martin Newman, The Consumer Champion, commented: “There’s still a lot more that retailers can do to engage with their customers and understand their lifetime value (LTV). They need to move away from focussing on the cost to serve, and more on driving customer engagement. When retailers take away channels, or they implement the wrong service proposition, it can negatively affect the customer. Every business can start the process of turning more people into fans by making customer service more about customer care to encourage advocacy, and by walking the talk on diversity and inclusion, and sustainability.” 

The RTT also acknowledged how the significant squeeze on household budgets could impact retailers’ profit and loss in the early part of 2023.

Joe Marshall, Managing Director, Customer Experience and Channel Performance, Ipsos Retail Performance, said: “We’ve been looking at how well consumers can cope with the financial demands of day-to-day life. There has been a big rise in people who can only afford the essentials and this is reflected in a change in their behaviour – they’re trading down, looking for a bargain, and only buying the essentials. This group has grown in the last 12 months but there’s still a margin on what they buy, and an opportunity to deliver value.”


The RTT agreed that retailers cannot afford to make the mistake of thinking ESG is a ‘sacrificial lamb’ in their bid to cut costs, nor should they think that customers will place less importance on it because they have less disposable income. Instead, retailers must think of new ways to make their products both sustainable and good value, and remember that the two are not mutually exclusive.

Retailers will be expected to be transparent and demonstrate how sustainable their practices are. Paul Martin added: “Lots of businesses are struggling with their ESG reporting at the moment and they’ll be called out if they’re caught greenwashing.”

Members pointed out that retailers who see ESG as a cost not a benefit could be missing out on the commercial opportunities it brings.

Martin Newman, The Consumer Champion, said: “Younger people vote with their purses, and they won’t engage with businesses that don’t behave properly when it comes to sustainability, diversity and inclusion, and how they treat people. It’s historically been treated as a tick-box exercise, yet it could be part of the DNA of their business and give them a competitive advantage. There are 14 million disabled people in the UK, for instance, and retailers do a really poor job in catering for them. More generally, retailers’ marketing efforts are still focused on top-of-the-funnel activities, rather than on retention. Very few are making a concerted effort to build lifetime value – so those that do could have a big impact fairly quickly.”


The RTT believes that 2023 will be a ‘year of two halves’ with the first six months marred by compound inflation and low-consumer confidence, before the sector starts to pick up again.

James Sawley said: “H1 will continue to be tricky – there will be the usual impact from Christmas and nobody yet knows what effect increased energy bills and mortgage rates will have on trading results. However, H2 looks much better and I’m optimistic that things will improve quickly. Inflation will unwind and this should change everyone’s mood and outlook.”

While the RTT acknowledged the difficulties facing consumers and retailers, members warned against the retail sector ‘talking down the market’.

Despite what has been reported in the press, many parts of the sector have been performing well even with inflationary pressures, strikes and low consumer confidence. Just like they did during COVID, retailers have responded quickly to changing consumer sentiment during the cost of living crisis, as James Sawley put it: “Retailers have been working hard to make Christmas affordable and have nailed their campaigns this year.”

Looking ahead, Martin Hayward, Founder – Hayward Strategy and Futures, said: “I’d urge retailers to make their New Year’s resolution ‘don’t talk the market down’. In many ways, the sector is performing well. People are going out and we need to encourage them to get out and about more.”

That’s not to say there aren’t challenges ahead, especially for online-only retailers. There are likely to be more casualties if retailers fail to adapt their business models or leverage their growth engines. As well as a focus on cost-efficiency, it’s clear that customer insights are now critical, and without them retailers cannot drive demand through buying and merchandising, nor win lasting loyalty. There are still many under-served customer segments that retailers could tap into that would further increase their profitability.

Profits might be the biggest driver for businesses but the other themes for this year – people and planet – are not ancillary. They’re a core part of retailers’ success and ignoring them will be costly, both financially and reputationally. Consumers are looking for value above all as their disposable income drops but they’ll still hold retailers to account – voting with their feet if they believe a brand falls short of their values around sustainability and diversity and inclusion. Similarly, employees in the retail sector will simply go elsewhere if they don’t feel valued.

Rather than seeing people and the planet as a cost-burden, they should be viewed as an asset for any retailers, and a way to drive profitability as the market stabilises and improves.

PART II In detail – individual views of the KPMG/IPSOS Retail Performance Think Tank members

Paul Martin, UK Head of Retail – KPMG (947 words)  Subject to sign off from KPMG Press Office

2022 can be categorised as a year of 3 different phases for the UK retail market. Even though the macro-economic clouds were forming at pace at the beginning of the year the first 2 months of 2022 started well for the retail sector. The BRC-KPMG sales monitor showcased strong growth of 11.9% in January and 6.7% in February after the Omicron Covid-19 variant had peaked and various restrictions were lifted.

The Russian Invasion of the Ukraine, resulting in the first land war on the European continent since 1945 has had many far-reaching implications. Alongside the human tragedy, global supply chains, already under enormous pressure after the Covid-19 pandemic were stretched even further, commodity prices for products like wheat and sunflower oil accelerated  exponentially  and utility prices exploded all with negative consequences for the UK retail market. This geo-political event resulted in a slow-down in demand and a further increase of costs for retail businesses with consumer confidence levels reaching historic lows. Even with this backdrop large parts of the market remained resilient and especially non-food categories like apparel benefitted from 2 years of pent-up demand during the spring and summer seasons.

From the autumn onwards the macro-economic headwinds, manifesting itself with inflationary pressures rising to 11%+ in October and the UK posting negative GDP growth for Q3 have started to translate into the real economy with retail sales slowing to 2.2% in Sep and 1.6% in October. In that context it is important to highlight that these growth figures are linked to value of sales and not volume and volumes are now declining by 5%+ depending on the category. We do expect UK consumers to spend to celebrate Christmas after the previous years of restrictions although overall sales will likely be flatter with purchases of gifts spread out over multiple months with a focus on bargains obtained during promotional events like Black Friday resulting in over 4% growth for the month of November.

The current situation does not paint a rosy outlook for 2023 with a long, although shallow recession the likely outcome and no significant recovery expected until mid 2024. Especially Q1 of 2023 is likely to be the most challenging quarter for many retailers and after a more muted Christmas trading period this could result in a flurry of business failures which we have already started to see with the likes of and Joules. Especially the online sector faces a challenging outlook after experiencing a rapid increase in demand during the Covid-19 pandemic and then receiving unrealistic valuations and now having to deal with a slowing market and increased cost-base.

Looking ahead to 2023 the overall sector is projected to grow by x% – y% with the grocery categories delivering a stronger performance than non-food.

Many of 2022’s themes will remain front of mind in 2023. In summary it is fair to say that the short to mid-term outlook of the sector remains challenging although retailers have learnt to adapt and have demonstrated remarkable resilience over recent years. Also every crisis comes with opportunities and some organisations will benefit from the current situation through market-share growth and consolidation opportunities that will arise.


In 2023 3 key themes should be front of mind for retailers – these are People, Profit and Planet.

Planet: During an economic downturn it would be easy for the Health of the Planet to be a sacrificial lamb for many organisations. This cannot be the case though and retailers will have to show that they stand for more than just profit. Demonstrating how retailers can operate sustainable business models, whilst being an integral and collaborative part of the society they serve (especially during a cost of living crisis) and can stay in front of or influence the regulatory environment will be key. Understanding how to make a difference, especially in a low-margin sector and how to communicate this to the various stakeholders should be a priority. Connecting this topic with Profit is an opportunity that will also require more exploring.

People: Attracting and retaining talent in the current climate will challenge many retailers. Competitive pay and benefits is only one dimension whilst also adapting changing working patterns and the need for varying skill-sets will need to be considered. Alongside the ability to showcase employee-centricity, understanding the consumer has to be front of mind for every retailer. Even though most organisations claim their customers are at the heart of everything they do there is still much work to be done in this space. Finally managing all other stakeholders be it Shareholders, Policymakers, Influencers to name a few will require more focus during challenging times as the retail sector due to its public nature generally attracts more attention and scrutiny then many other areas of business.

Profit: Maintaining profitability has already become increasingly difficult for many operators due to the softening in demand and mainly due to the increase of costs across the board. Therefore cost & efficiency will be top of mind for most with savings against Pre-Covid cost-bases of up 10-30% very likely required. Nobody has saved themselves to greatness though therefore thinking about how to drive growth still has to be part of the agenda. Many traditional growth avenues such as acquisitions or category adjacencies may be paused for the time being although as previous explored by the Retail Think Tank a focus on optimising price and promotional elasticity could represent a margin growth driver for 2023. At the same retail business models will need to constantly evolve – even with online penetration growth slowing channel convergence continues and new channels like social commerce or the metaverse will take more share in years to come therefore constantly challenging the “as-is” will be the norm.

Maureen Hinton, Group Retail Research Director, GlobalData Plc 

Inflation lessens but the cost of living will remain high, with less disposable income, lower volumes, trading down, and more considered, and polarised, spending.

Inflation will start to lessen, but household expenses will remain elevated due to the cost of energy and increased interest rates negating any benefit from lower inflation elsewhere. And wage rises will continue to drag behind price increases, further impacting disposable income and retail spending.

Despite inflation hitting lower income households the hardest, as we saw with the global financial crisis, consumers across the board will become more considered with their spending (see chart below). Even middle, and higher, income families will be looking for value, buying less, and shifting to the discounters and value players, such as Aldi, Lidl and B&M for food and necessities.  This trading down will also favour retailers in other categories who can offer quality and design, but at lower prices, such as IKEA and Dunelm in home categories for instance.

The market will grow because of value inflation but buying less means volumes will fall, and this will make the market even more competitive. GlobalData forecasts 2023 retail expenditure at -0.4% for the year. This comprises with inflation at 5.7% and volume negative at -6.1%.


The clothing & footwear sector is likely to see the highest number of casualties.  It is highly fragmented and as volumes reduce the weaker operators will suffer.

The clothing sector is also facing spend being diverted into the growing resale market via sites such as Vinted.  For cash strapped consumers it is a growing method of raising money as well as buying at reduced prices.  GlobalData forecasts the resale market in the UK will grow by 22% in 2023 to £6.5bn – a 13% share of the total clothing, footwear and accessories market – a larger share than any of the market leaders such as Next, M&S or Primark hold. Retailers and brands are building their own circular businesses, but this is a channel that is continuing to disrupt sales and dampen primary demand.

There will still be polarisation in spending, with Luxury continuing to outperform.  Having an affluent customer base and producing aspirational products is a benefit.  Accessories and watches hold their value and are a good investment.  However, the UK government imposing VAT on tourist spending is making the UK a less attractive destination than other European countries for foreign tourists, which will dampen spending despite the advantage of a weak pound.  And this is only a small part of overall spending. Mass middle market retailers are the ones who will be under the most pressure.

For retailers, the tight labour market and higher interest rates will negate the benefits of lower costs in the supply chain

The supply chain is beginning to return to pre-COVID levels of cost as supply increases and freight costs reduce but Brexit and COVID have left the UK with a much-reduced working age population and major labour shortages across the whole economy.  To attract and maintain workforces, retailers are having to provide attractive packages and increase wages to remain competitive.

Financing business debt and investment is also becoming more expensive because of higher interest rates which, combined with a more competitive, value led, lower volume, retail environment, will lead to more casualties and asset disposals among those businesses that do have high debt levels and low cash reserves.

To survive in such a competitive environment, retailers will prioritise revenue and profit, manage costs and delay major capital expenditure where possible.  That said retailers need to continue to innovate to stay ahead of demand and ensure their service levels meet customer expectations.  Stealth strategies such as increasing prices of returns, product shrinkflation and skimpflation, and reducing range options while increasing private label share, will help maintain margins.

ESG will continue to be a key issue for businesses.  However, the war in Ukraine and climate change increasing energy and food prices have forced consumers and businesses to become more environmentally responsible.  By reducing energy consumption and waste we are helping the environment by accident rather than design. Whether these habits will remain embedded is questionable.

The 2020 decade has delivered a series of shocks with the pandemic, war in Europe, and further climate crises, and there is the continuing prospect of a global recession, but we are seeing life returning to pre-pandemic behaviour and if this continues, we expect to see demand increase as 2023 progresses.  It will be yet another tough year for retail and a case of survival of the fittest.

Mike Watkins, Head of Retailer and Business Insight UK – NielsenIQ

With the UK in recession, high inflation leading to a significant fall in real incomes and continued global disruption to energy and supply chains, it will be a year in which consumer spend declines and retail sales volumes fall. There is unlikely to be any improvement in the consumer mind-set around personal finances or spending intentions and if unemployment increases, there will be little to stimulate demand across the nonfood and out of home channels. Which means shoppers will have less money to spend on discretionary retail and services in 2023.

However, there is a different challenge for food retailers. Firstly, and despite inflation supporting a topline business growth of c. 5% in 2023, volumes are likely to fall for the second year running as shoppers put fewer items in their shopping baskets and focus on purchasing  essential groceries. Trading down to cheaper products, buying more private label, and managing budgets by careful buying of fresh and chilled food so as not to waste these foods (in a category with high inflation) will be key coping strategies. As shoppers` batten down the hatches this will put more pressure on the operating margins of food retailers particularly in the first 6 months on the year.

Secondly, the structural shifts to discount and value retailing, smaller format food shopping and online will continue which means that demand may be weakest at superstores and hypermarkets. Aldi and Lidl will pass a combined 20% market share of the FMCG for the first time (NielsenIQ Homescan) as they open c. 100 new stores, flex ranges and develop new store formats to drive frequency of visit. Value Retailers (B&M, Home Bargains, Poundland) will also edge closer to a 6% market share of FMCG (NielsenIQ Scantrack Value Retail). As a result, the market share of the `big4 ` supermarkets will continue to fall as shoppers shop differently not just to save money but to fit around their changed lifestyles.

As more consumers seek convenience, adopt hybrid working and get back to socialising NielsenIQ expect shopping occasions e.g. tonight’s tea to increasingly replace shopping missions such as the weekly trolley shop. This is where Rapid Grocery Delivery (and Quick Commerce in general) will remain relevant for the more affluent, urban, and younger shoppers with a typical spend per transaction of between £16 and £21 depending on the platform or aggregator. (Source: NielsenIQ Fox Intelligence).  This emerging and consolidating channel also has the potential to capture more takeaway and hospitality spend aswell changing what`s purchased from supermarkets and convenience stores, particularly if cash strapped shoppers consider the cost of fast delivery is a reasonable trade off to dining out.

Finally, 2023 is going to be watershed year for business models still evolving post pandemic. Technology, automation, digital touchpoints across the shopper journey and better use of shopper data (personalised, transactional loyalty card intelligence) can all help retailers reduce core operating costs. This will be important as retailers look for ways to sustain profitability amid the cost-of-living crisis. And re imaging stores and making digital a seamless customer proposition should be a strategic imperative for all retailers as this could be the catalyst for a recovery in retail spend in 12 months’ time.

But in themselves, they are unlikely to make up for the shortfall in consumer demand due to the prevailing macro-economic environment and the myriad of external factors that will continue to constrain retail growth in 2023.

James Sawley, Head of Retail & Leisure, HSBC UK

It doesn’t take an economist to realise the outlook and in turn the retail sector outlook is somewhat dim. January will undoubtedly see a fresh wave of insolvencies, especially at the SME level where a judgement call to throw in the towel maybe taken out of businesses hands. For those who remain, it’s likely they’ll require some TLC in the form of covenant resets or in worse cases debt restructuring to help with the year(s) ahead. We’re hopeful the sector will have cleared a good portion of the inventory glut through the golden quarter, but for those who couldn’t will see their working capital cycle stretched, putting further pressures on cash. This will have the obvious impact on liquidity, the knock on implications however are less obvious – stretching of creditors and straining suppliers, credit insurance bring withdrawn limiting product selection, the need to aggressively discount potentially damaging brand value, cutting costs and overheads, pulling planned CAPEX restricting any potential near term growth and future efficiencies etc. Equally, for those who remain the demise of competition naturally fuels the future probabilities of success for the rest. It’s not all doom and gloom however, there are tailwinds forecast in the year ahead. The US dollar – a cornerstone of retail, has pared back its histrionic losses from September, which would’ve been catastrophic. Freight rates (spot) are almost back to pre-covid levels, which proved a monumental cost burden the past 2 years, and could even drop below pre-covid if current trends ring true. Business rates have finally been revalued and broadly speaking, for multi-channel retailers will prove beneficial, with drop in valuations typically ranging anywhere from 10-50%  dependant on location, type and size.  A global easing of the last remaining Covid restrictions in place would have an overwhelmingly positive impact. As witnessed in almost every major economy upon restrictions being lifted, citizens travel in their millions. And so do their wallets, which is currently the case with US tourists taking advantage of a strong dollar and fewer Covid restrictions throughout Europe. Retailers will also have the benefit of knowing what post-Covid trends look like: big spending across holiday and travel categories, strong purchasing habits in the luxury sector, formal and going-out wear booming, etc. While perhaps a reopening of all economies appears unlikely today, it does feel inevitable at some point. Retailer health accounts for only one part of the sector equation, consumers, consumer balance sheets and consumer economics are equally important. Christmas 2022 will hopefully have proved a ‘relative’ success which will most likely result in a consumer debt hangover, namely: BNWL – Buy Now Worry Later, and a battening down of the hatches will ensue. A year of rising unemployment, inflation, interest rates and negative real wage growth will equate to consumers buying less non-essentials, the trading down trend will continue, own brands will flourish and value for money will be king. And whilst all this is true, the psyche of the British consumer isn’t always rational. Certain aspects of British live are sacrosanct and consumers will find a way to makes end meet, i.e. Christmas, birthdays and a holiday or sports is all but guaranteed. We Brits tend to find a way. All in all, I’m hopeful there is an upside surprise to all the doom and gloom out there, but I’m acutely cognisant 2023 will be a challenged year putting it mildly.

Martin Hayward, Founder – Hayward Strategy and Futures (687 words)

For a happy and prosperous 2023, retailers might like to consider some of the following New Year’s resolutions:

Don’t talk the market down:  The British Retail Consortium (BRC) released a view on the UK retail market last week with the title “Bleak winter ahead as inflationary headwinds continue”.

This report was widely quoted in both the business and mainstream press. Whilst the BRC PR team will have been thrilled with the level of coverage that their release achieved, it is worth considering the impact that such messaging will have had on the consumers upon which the industry relies. With consumer confidence a bit rattled by inflation, it is likely that scaring the Bejesus out of them isn’t really going to help matters.

Not content with this, they then quickly followed up this report on Friday with another release entitled “Footfall stumbles ahead of Christmas”.

Meanwhile, below are pictures of Carnaby Street and Oxford Circus in London on Saturday.

Whilst there are obviously issues for consumers to worry about, there is much to be optimistic about in the New Year.

Embrace the positives: Despite some global economic headwinds that are affecting the UK no worse, and arguably less, than many other nations, there are some very positive aspects to the UK situation that should be embraced and exploited by retailers:

  • Full Employment


  • Extensive help for those on low incomes through 40 support schemes including;
    • Energy bill Support – £400 for every household
    • £650 Cost of Living payments for those on benefits
    • £150 Council Tax rebate for bands A to D
    • Universal Credit Christmas Bonus
    • Extra winter fuel payment for pensioners


  • More consumers
    • Net immigration in the last year was an unprecedented 504,000 people. Wow. Whatever the social cost, that must be good for the best part of a 1% increase in sales without doing anything.


  • Inflation set to fall

Overall UK inflation is similar to most markets


Inflation is widely predicted to fall rapidly in the new year. The early signs are already emerging that fuel prices are moderating and the follow through costs will stabilise. The inflationary blip is passing.


  • Money in their pockets

Don’t forget that the lockdown bonus of over £7,000 that the average household amassed during enforced inactivity is still significantly present. This is witnessed by forward bookings for holidays in 2023 that are reported to be 25% up versus pre-pandemic levels. Talking the market down will not help to release these funds.

Read widely, question everything and get out and about

Our understanding of our retail environment, shoppers and consumers is heavily influenced by the media we consume and the lifestyle we lead.

The nature of modern media delivery and consumption means that every retailer should be cautious about living in their own ‘echo chamber’ or ‘filter bubble’ and look to embrace as many sources of information as possible. Read both The Sun and The Guardian and The Mail and The Times and The Economist and The Spectator. Listen to more than just the BBC news. Visit stores around the country. Question the statistics you hear quoted and look for the real data.

Invest heavily in conducting real research with your consumers to find out their fundamental wants, needs and aspirations rather than merely using research, as David Ogilvy famously said, as a drunk uses a lamppost – for support rather than illumination. Try hard to avoid imposing your own virtue agenda on your shoppers.

With a booming jobs market, a return to low inflation, and improving consumer confidence imminent, opportunity abounds if you look for it. Conversations with your shoppers will unlock how that opportunity can be crystalised.

…and finally, for those still feeling bleak, a quote from the author Stephanie Osborn:

In ev’ry life there comes a winter bleak
That, in it, never yet seems life to come
And on each heart such desolation wreak
That even light from Heaven seems succumb’.
But, even as in year, doth follow Spring
As ever hath it, through all Ages past
Yet so in life a joy again will ring
And light and love will come again at last.

Martin Newman, The Consumer Champion

I’m hopeful that 2023 will be a better year. Albeit the second half of the year will be the time when we see the earlier drop in inflation, the fall in interest rates, and peace in the East feeding through to consumer confidence.

Until then, consumer confidence will remain at a low ebb, with most consumers continuing to be cautious with whatever is left of their disposable income and be more inclined to save than spend in the first half of the year.

Growth in online sales will pick up again in 2023 as the novelty of being out and about becomes the old normal and consumers again look for convenience offered by the proliferation of choice available online and the convenience of same day and next delivery.

Despite the continual headwinds, there are many drivers of growth available for retailers:

Empowering customers to shop more sustainably:

Consumers are increasingly becoming more conscious with their consumption, and we are all racked with guilt about the potential impact to the climate of what we buy and from whom we buy it. Retailers can get ahead of this by offering more choice to consumers where buying a new item is not the only option. Renting, purchasing recycled products or those that are preloved, will encourage consumers to engage. It’s also an increasing opportunity to enable customers to trade in or donate their old items to your business for a discount off a new purchase or for these items to be donated to someone else in need. All of which will help increase frequency and build customer lifetime value.

A few retailers have already embraced this with Decathlon even reversing their brand on signage in four stores in Belgium to promote it.

Embracing the circular economy and proving you are walking the talk will endear retailers to a broader set of customers.

Make Diversity and Inclusion a core part of the DNA and not a tick box exercise:

Diversity and inclusion represent a still relatively untapped opportunity for retailers. Not only is being diverse and inclusive morally the right thing to do, but it has huge commercial upside.

A McKinsey & Co study, of over 1,000 companies across 12 countries, found that firms in the top quartile for gender diversity are 21 per cent more likely to enjoy above-average profitability than companies in the bottom quartile.

Companies in the top quartile for ethnic diversity, meanwhile, are 33 per cent more likely to see higher-than-average profits than companies in the lowest quartile.

But these stats don’t reflect a potentially even greater opportunity to effectively address the needs of the 14m disabled people in the UK. The Purple pound as it’s known has a value of £350bn.

And I know from first-hand experience of how poorly the needs of this huge cohort of customers is currently met.

To bring focus on this, why not measure a new KPI: Return on Inclusion.

Drive customer engagement:

Another new ROI that retailers should be embracing is Return on Involvement. Yes, engage more effectively with customers and they will become more loyal, and their lifetime value increases. Sounds obvious, doesn’t it? And yet, an incredibly small percentage of retailers have a meaningful approach to customer engagement. You might previously have referred to this as CRM, customer relationship management.

With CFOs putting us under constant pressure to prove a return on our marketing spend it is no surprise that our ecommerce and marketing teams place so much focus on acquisition of new customers. Particularly as they can measure ROAS (return on advertising spend) and tend not to measure customer lifetime value.

Crazy when you think that we don’t try to measure the long-term value of customers. Particularly when you consider the many benefits of customer retention and loyalty.

Just a few of which include the following:

  • Lower costs – It costs up to seven times more to attract a new customer than to keep an existing one.
  • Room for improvement – Feedback from existing customers can be used to improve your offering and overall performance.
  • Better conversion rates- Existing customers are repeat customers and they will likely buy from you again.
  • Higher profits – Existing customer sales are less price focused. And, since you have established trust with your current customers, it’s much easier to upsell and cross-sell to them.
  • Less marketing – With current customers, there’s no need to push aggressive marketing at them since they already know you and the nature of your products or services.
  • Existing customers are advocates and drive acquisition – Word of mouth and what other customers say will always be trusted more than your own marketing activity.


Make channel strategy about driving lifetime value:

Retailers need to ensure that they turn up where customers need to them be.

Far too many are focussed on the cost to serve and make decisions that drive the wrong outcomes for customers such as not investing in a well thought-through channel strategy and ensuring they show up where customers expect them to be.

That includes offering the right levels of convenience (Click and collect, same day/next day delivery etc) as well as empowering customers to contact them however suits them best and not the brand. E.G. What’s app, live video chat etc.

Turn customer service into customer care:

There is also a significant opportunity to step back from the cost to serve approach and take a lifetime value view of customer service. So, rather than pushing customers away as we mainly do today, we seek to solve problems for customers with first time resolutions.

This will require a change in culture for many businesses, where contact centre operators are empowered and trusted to make decisions for customers as opposed to having to go up the chain of command for approval. And where success is measured by pre and post NPS.

Empower stores to drive localisation:

Larger retailers would benefit from empowering their store colleagues to provide more localised and relevant propositions. From feeding into product decisions to merchandising, visual merchandising, promotions, and customer service. A brand that does incredibly well is Timpson. Where everyone on the front line is empowered to offer discounts, set up new promotions and compensate customers when things go wrong.

In so many ways, they are the benchmark for what a great retail business should be.

Measure what really matters:

Finally, Retailers need to do a better job of measuring the inputs rather than focussing too much on the outputs. Yes, of course we need to know sales, conversion, average order values, footfall/traffic and so on. But they tell us nothing about why we’re performing the way we are. NPS (Net Promoter Scores), CSAT (Customer Satisfaction), surveys on our website asking customers why they didn’t buy, why customers are getting in touch with our customer service team and so on. These tell us why we’re performing how we are. They paint a picture of where the friction is, what stops people from buying. What they like, and what they don’t like.

We can then pull the right leavers, and invest our budgets in areas where we can be more confident of generating a more significant and sustainable ROI.

Jonathan De Mello, Founder & CEO, JDM Retail Ltd 

We have seen record inflation in 2022, with concurrent wage increases – all of which have impacted retailer margins. 2022 has been a year of 2 halves however, with reasonably strong demand in Q1 and Q2, prior to cost of living headwinds impacting both demand and costs in Q3 and Q4 YTD. We are expecting a similar picture for 2023 – with H1 2023 potentially even worse than H2 2022 from the perspective of both inflation and consumer demand, with signs of recovery starting to appear as inflation starts to abate in H2 2023. This however very much depends on the wider global macro-economic environment, and assumes no further escalation of hostilities in Ukraine, into NATO territories such as Poland and beyond.

What this means for physical retailers is increased store trading costs, and net margin decline. The energy crisis will deepen in 2023, after which related costs – such as the cost of goods – will fall, stabilising by 2025. Our growth assumptions assume that labour cost growth will track the growth in energy costs, stabilising around the same time to average pre-crisis levels. In light of the war in Ukraine, energy price inflation has been the overarching concern for many businesses, in part due to the impact on consumers, the cost of production and logistics. However, in terms of store trading costs, utilities typically comprise only a small proportion of costs, and so energy price inflation has only a small impact on profitability – which for many will be offset by the forthcoming reduction in business rates. Food stores are the exception as energy costs associated with refrigeration are higher, although supermarkets benefit from more inelastic demand than non-food retail.

From April 2023 onwards retailers will benefit from lower business rates. The impact of the rates revaluation varies by asset class (see graph below) and location, as it is based on 2021 rents (vs 2017 previously). The graph shows the beneficial impact the rates revaluation will have on large centres in particular – such as out of town malls, city centres and large towns –  and also illustrates a move towards more local shopping during and post COVID, with small rateable value increases in such locations.


The government has announced that the UBR is once again not subject to a CPI-linked increase this year, and that any reduction in rateable value is also not subject to downward transition, although upward caps are applicable. The result for many is that rates payable will be lower in 2023, which will help alleviate some of the cost increases retailers will experience next year – but 2023 will still be extremely tough regardless, with retailers forced to take a significant hit on store net margins. This will mean that some retailers will likely close stores next year that do not deliver sufficient contribution to the business, assuming lease ‘events’ coincide with these closures. Other retailers looking to open stores in the wake of these closures would do well to negotiate a couple of years rent free over the course of a standard 10 year lease – to ride out the storm in 2023 and to an extent 2024, prior to what will hopefully be better trading conditions in 2025.

In terms of an online sales tax, the government decided not to introduce such a tax in their recent Autumn Statement – partly because some retailers are for a tax, but many (that invested heavily in their online transactional capability during COVID) are against. The online pure play business model is proving rather challenged at present anyway, with the failure of, and consistently poor results from the likes of Boohoo and ASOS. Pure plays will ultimately pay higher property taxes anyway, given the rateable value of DC’s/warehousing increased significantly since the last revaluation (circa 30% on average, as the graph above shows). Amazon for example will pay c. £29m additional business rates from 2023 onwards. The government estimates that total business rates paid by the retail sector will fall by 20%, but will rise 27% for DC’s/warehouses. This will of course impact brick and mortar retailers too, but to a lesser degree.

Make no mistake – 2023 will be tough for retailers, with many struggling or even falling into administration. One or more online pure plays may indeed go the way of before the year is out. In terms of physical retailers, with a couple of exceptions there are very few big names that are likely to fail however – with the majority of the weaker performers such as Debenhams and Arcadia Group failing during COVID. This if anything has strengthened the position of the stronger retailers such as Primark, Frasers Group and Next – the latter two snapping up struggling retailers for a cut price on a regular basis, to further bolster their own trading positions. Retailers that aren’t Primark, Frasers Group or Next however, will need to do everything possible – across the value chain – to mitigate the impact of high inflation. One point we should remember however in all of this – retailers survived the worst possible trading environment since World War 2 in COVID. This current cost of living crisis pales in comparison to that.

Ruth Gregory, Senior UK Economist, Capital Economics 

We expect 2023 to be a year of recession as households continue to face a nasty combination of high inflation, high mortgage rates and falling house prices. But by the end of the year, an easing in these headwinds should eventually give way to a recovery in real consumer spending.

There are three reasons why we expect a contraction in real consumer spending over the coming quarters. First, much of the economic pain of this year stems from the surge in consumer price inflation from 2.0% in July 2021 to 11.1% this October. And with CPI inflation set to remain very high next year, we expect it to weigh on households’ real incomes in 2023 by a huge 7.7 percentage points. (See Chart 1.) As such, we think households’ real incomes will contract by 3.2% in 2023, the largest fall since records began in 1955. (See Chart 2.)

Chart 1: Contributions to % y/y Real Household Disposable Income (ppts)


Chart 2: Real Household Disposable Income (% y/y)


Admittedly, there is already substantial evidence that goods inflation is now slowing as product shortages ease. But utility prices will increase by another 20% in April 2023 when the government’s energy price guarantee for the average annual household utility bill rises from £2,500 to £3,000. Meanwhile, there remain bigger questions over the path of services inflation (which accounts for 40% of the inflation basket). So far, services inflation, which tends to be driven by wage growth, has shown little signs of a turnaround. (See Chart 3.)

Chart 3: CPI Goods & Services Inflation (%)


Second, rising interest rates will push up households’ debt interest payments and encourage more saving. As we now think the Bank of England will raise interest rates from 3.00% now to a peak of 4.50% next year as opposed to 5.00%, mortgage rates will be a bit lower in 2023. But we still think mortgage rates will average 5% in 2023, leaving the cost of buying a home with a mortgage exceptionally high. (See Chart 4.)

Chart 4: Mortgage Availability


Third, we suspect that the cost of buying with a mortgage will remain far too high for housing demand to recover and house prices and housing transactions to bottom out anytime soon. Indeed, we think that a 12% fall in house prices over the next year and a half will weigh on consumer confidence and consumer spending.

We do not expect consumer spending to decline by as much as real incomes in 2023 as households reduce their saving rate below the long-run average of around 7% in 2023 to make ends meet. Overall, we think that consumer spending will fall by around 1.0% between Q3 2022 and Q3 2023. That’s pretty miserable when spending is still about 2.7% below its Q4 2019 pre-pandemic level and even further below where it would have been had the economy grown at its potential rate. (See Chart 5.)

Chart 5: Real Consumer Spending (Index Q4 2019 = 100)


But we can take some solace from the fact that things will probably look and feel very different in a years’ time. By December 2023, inflation will probably be around 4% and after falling by about 5% in early 2023, real wages will probably be rising by 0.8%. This should restore some purchasing power and give rise to a rebound in households’ real disposable incomes and consumer spending. What’s more, lower inflation may mean that the conditions are in place for the Bank of England to pivot to interest rate cuts. So there are good reasons to expect a recovery to materialise by the end of the year.

Overall, we suspect there are three key factors that will define 2023 each with important implications for what will come next; Will the exodus from the labour market that has reduced size of the workforce by around 966,000 be reversed in 2023 (see Chart 6), meaning for any given level of demand, inflation is lower than otherwise and the economy’s potential growth rate is higher?; Will services inflation recede and if so, how quickly?; And finally, how far will the Bank of England have to raise interest rates?

Chart 6: Labour Force (Q4 2019 = 100)