‘People are starting to feel richer and that should translate into higher retail spending’

As we head into the second half of the year, there’s a cautious sense of optimism in the air for the outlook in retail.

Despite a challenging first six months marked by poor sales in April, May and June, there are good reasons to believe the tide is turning.

While the first half might have been rough for many, from here the only way – hopefully – is up as we look towards the golden quarter.

 There are a number of positive signs in the hard numbers alone.

For example, this will be the first year of normalised inflation since before the pandemic. With the previous two years bringing hyperinflation and the year before that significant supply chain challenges, there must be optimism that this year will be more normal.

“The UK is likely to be the third fastest-growing G7 economy over the next decade. This is significant, considering the turbulent waters we’ve navigated over the past few years”

Then there’s the economy more generally. PwC’s recent economic outlook was surprisingly positive, predicting real GDP to grow by around 1% this year and pick up pace in the subsequent years.

The analysis even suggested that, based on current trends, the UK is likely to be the third fastest-growing G7 economy over the next decade, behind the US and Canada. This is significant, considering the turbulent waters we’ve navigated over the past few years.

One of the most promising aspects of the second half is steadying inflation and even anticipated interest rate cuts later in the year.

With economists predicting a more favourable economic environment and real earnings increasing faster than inflation for over a year, with Asda’s disposable income tracker up by 13.5% year on year, in simple terms, people are starting to feel richer and this increased disposable income should translate into higher retail spending.

Sentiment indicators are also showing a positive trend. Our latest consumer sentiment survey has shown sentiment climb to the highest level in three years, well above the long-run average. That improvement in sentiment is seen across almost all demographics.

“There is pent-up demand that’s likely to be unleashed in the coming months. The weather can only improve, benefiting fashion retail in particular”

People are looking forward to seeing friends and family – and special events – as well as going on holidays and, increasingly, Christmas. There are even early indications that Christmas spending intentions might be stronger than last year, albeit some uncertainty remains with short-term spending cutbacks not really improving compared with last summer.

However, there is pent-up demand that’s likely to be unleashed in the coming months. The weather, which has been less than co-operative, can only improve, benefiting fashion retail in particular. Even if shoppers aren’t buying for the current season, they’re purchasing for their holidays.

Speaking of holidays, they’re a boon for the fashion sector. While last-minute bookings have become the norm, people still need new clothes. Whether it’s for an international getaway or a staycation, fashion retailers should look forward to some late pick-up in demand.

You could also argue that the catalyst for this positive shift is the change of government, because that’s something we have seen in the past.

“While it’s early days, retailers will again look at M&A to either focus on their core or drive growth from new product categories, new markets, new operating models or internationally”

Back in 2010, there was a positive halo effect on consumer spending that lasted for at least six months.

If history is any indication, we can expect a similar trend this time around – retailers must be ready to seize this opportunity to make hay while the sun shines.

That includes deals. While it’s early days and likely to follow the pick-up in spending, retailers will again look at M&A to either focus on their core or drive growth from new product categories, new markets, new operating models or internationally.

To show my increasing confidence in the retail market, I recently had a conversation with a private equity client about the state of the industry and better outlook, including my reasons to be cheerful. 

We were not on the same page and they bet me that my positive outlook was wrong and the industry would not improve this year. I’m confident I’ll have the last laugh.

While the first half of the year may have been challenging and there could be more bumps in the road, the second half holds more promise.

With positive economic indicators, improved consumer sentiment and a focus on growth, the retail industry could be poised for a more successful end to 2024.

As we start to turn our attention to the golden quarter, retailers should brace themselves for more opportunities. Things can only get better from here.