While the retail sector outlook for 2024 is expected to be muted, hampered by ongoing macroeconomic challenges, weakened consumer demand and low economic growth prospects, retailers mustn’t let stagnation stifle innovation and future opportunities, the KPMG/RetailNext Retail Think Tank (RTT), an independent board of retail experts, warns.
With the UK economy set to tread water in 2024, the RTT expects this will impact growth within the retail sector. Pressures on consumers and firms from high inflation may be easing, but “the economy faces major headwinds from the lagged impact of monetary policy tightening and tight fiscal policy settings,” according to Charles Burton, Director at Oxford Economics.
The RTT’s latest quarterly whitepaper – Retail outlook for 2024: What are the opportunities for retailers in a year of stagnation? – sets out its 2024 retail outlook, and includes key growth predictions, including re-invigorated retail formats and innovation trends, as well as its forecast for category winners and losers and predictions for the year ahead.
2024 Predictions – Key challenges and prospects for retailers
With monetary and fiscal policy remaining a dead weight on the UK economy in 2024, the RTT report highlights several challenges that will impact retailers into 2024. These include rising cost pressures on their businesses, including National Living Wage and Business Rate rises; weakened consumer demand due to the ongoing squeeze on households through higher interest rate mortgage refixing for homeowners or rising rent costs for renters, wage growth rising against static tax brackets, and household debt servicing costs.
But, despite these challenges, the RTT predicts several growth opportunities in 2024, including: exploring growth models, such as retail media, or adopting platform business models following the success of Next and M&S and reassessing asset classes, such as retail park settings; investment in tech, including Gen AI, as well as innovating across commercial functions and the supply chain; tapping into new growth cohorts of consumers and moving away from a GenZ focus to acquire and retain older, more affluent consumers; and category winners seeing Food, Health & Beauty and Purpose-driven retail outperforming other verticals.
The rise and rise of retail parks
When it came to its property outlook, the RTT expects retail parks to become the standout retail setting in terms of growth, predicted to improve relative to other assets classes, such as High Street and Shopping Centres. Having already become a resilient retail setting during covid, buoyed by their tenant mix that included ‘essential retail’ supermarkets anchors, this rise and rise of retail parks shows no signs of stopping.
As CEO of JDM Retail, Jonathan De Mello, noted: “More comparison goods retailers want to trade on retail parks. For Next and M&S, their retail park stores are among their best performing. With a broadening of the offer away from just bulky goods, and more food and beverage operators seeking to trade on retail parks, they are increasingly providing a real alternative to high streets.”
Outside of retail park success, bricks-and-mortar will see a renaissance in 2024, the RTT predicts, driven in part by consumer demand as well as revenue driving opportunities presented by Retail Media Networks, which retailers including Currys, Tesco and Kingfisher have been swift to invest in. RTT Co-chair and Head of Sales at RetailNext, Gary Whittemore, noted: “Predictions that online will soon be more than 50% of all retail are problematic given that the rate of growth has been slowing in recent years and also that the cost of trading online is now on a par with stores. While there will still be pressure on the high street and the push to out-of-town, a well-executed omnichannel approach will be the winning formula.”
GenAI in 2024 – from mainstream hype to dial-moving reality
As part of its Innovation Outlook for 2024, the RTT whitepaper predicts that technology investments will continue to help separate retail’s winners from losers through 2024. However, the ability or willingness of retail businesses to fund innovation will have a significant impact on where on the performance spectrum retailers sit, as Retail Technology publisher, Miya Knights, pointed out: “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.”
Retailers should also ensure that economic stagnation doesn’t stifle innovation, according to RTT Co-Chair and KPMG’s Head of Retail, Paul Martin: “Even if the economic outlook remains muted, one thing history teaches us is that following a downturn we often experience an upturn, and retailers should be doing everything now to prepare for this.”
The RTT expects 2024 to be the year when generative AI (GenAI) will truly move the dial for retailers. As retail consultant, Natalie Berg, put it: “2023 was the year that GenAI propelled into the mainstream, 2024 will be the year of integration.”
Food and Health & Beauty among 2024 categories winners, but Home retail expected to struggle
After 2 years of falling volumes in food retailing, the RTT expects a return to volume growth in 2024. Mike Watkins, Head of Retailer Insight at NIQ, predicts food retail will see headline value growth of +4-5% in 2024, with volumes up around +0.5-1% next year.
Health, Beauty & Wellness is also tipped to be a category winner in 2024, as consumers favour the small luxuries in life and focus on wellness, according to James Sawley, Head of Retail & Leisure at HSBC.
Purposeful brands and those with strong sustainability heritage will enjoy good growth in 2024, albeit from a low base, Sawley suggests. This will prompt pre-loved and circular retail seeing success. “The pre-loved movement will continue to gain momentum, fuelled by the desire or need for value [and] we’ll see greater demand for durability, traceability and more transparency in retailers’ circularity efforts,” Berg added.
On the flip side, the RTT expects Home retail to face a challenging 2024, with retail consultant, Maureen Hinton, suggesting that a slow housing market, and the pandemic boom for home-related big-ticket items and technology delaying the replacement cycle, will make it more competitive for home-related sectors next year.
To download the RTT’s quarterly whitepaper, which includes wide-ranging insight from its members, analysis and exclusive data, visit: Retail outlook for 2024: What are the opportunities for retailers in a year of stagnation?