Why have UK merchants had a good start to the year by adapting to shifting consumer habits? Check the crisis in cost of living and people’s reactions to it.

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Due to the importance of Christmas to merchants’ bottom lines, updates on business during this period are constantly being keenly observed. The cost of living crisis has had a significant impact on stores this year.

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 In the months leading up to Christmas 2022, concerns were raised about the likelihood that retailers would lose out on profits by a large margin due to factors such as inflation, energy costs, pay pressures, postal and transportation strikes, and the ongoing effects of Brexit.

The British retail company ‘Next’ lowered its forecast for annual profits in the fall of last year, but the Christmas trading update shows solid sales, more so in-store than online.

Aldi, Lidl, and Iceland all had strong months for grocery sales in December. Iceland also fared well. Tesco, the market leader, fared admirably, and Marks & Spencer outperformed expectations in both food and non-food categories. The number of independent bookstores is at a ten-year high, which is further positive news.

Of course, it is still early and there are still more stores to report; the data for Morrisons and Waitrose indicated rather weak Christmas sales figures. 

Additionally, a number of retailers—including clothing company M&Co and online furniture retailer Made—did not survive 2022, while others including home goods retailer ‘Wilko’ were forced to refinance or required rescue including clothing retailer Joules and McColl’s, the operator of convenience stores that Morrisons acquired last year.

This may be the result of consumers beginning to alter their routines in the ways listed below in reaction to the crisis in the cost of living:

More credit purchases:

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There is some proof that many utilized their money and credit cards to make sure they had a wonderful Christmas. The home market slump and the urge to treat ourselves for the first Christmas without pandemic constraints in three years encouraged those who were able to spend money.

Local shopping:

The effects of the pandemic, along with recent strikes affecting the postal and transportation systems, have led people to spend more locally. People continued to use small and independent stores when pandemic restrictions were in place by exploring their neighborhoods and working from home. 

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The importance of buying locally has grown as a result of the difficulty of getting to some larger towns and cities by public transportation and the uncertainty surrounding postal deliveries due to strikes.

Only value shopping:

Because of the consequences of inflation, more consumers are looking for value, which has led many of them to switch to discount stores and own-brand products, which are frequently thought to give value.

 While overall spending is up during Christmas, the quantity of things purchased did not increase since some of the comparative sales increases were caused by increased pricing.

Wrapping up

Therefore, even though merchants should welcome results that were better than projected, they likely hide upcoming issues. Like M&S before it, Next mentioned potential price increases and concerns about affordability even in its positive Christmas results.

 Retailers including Sainsbury’s, Greggs, and Tesco have lately raised shopfloor wage rates as a result of a tight labor market and in response to their employees’ rising cost of living.

Despite these economic challenges, there are signs that inflation should start to reduce in 2023 and that energy prices may not climb as quickly as anticipated or may even decline. This year, recent interest rate increases in the UK might come to a halt.

The economy appeared to be pretty solid in January 2022, but things swiftly deteriorated. The hope is that things will get better sooner than expected in January 2023. Gains will be fought for. Further change in 2023 will not be distributed equally across all retailers or all customers as the economy continues to adapt to the consequences of COVID and Brexit as well as the cost of living problem.

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