‘The vibecession is lingering but things should be more positive heading into summer’

Every year there is buzz around retailers’ Christmas performance. This time is no different, with mixed messages about whether the season was successful or not.

The challenges were exacerbated by a subdued and hard-to-navigate lead-up, storms and poor weather affecting footfall, late Christmas trading and more.

Despite those hurdles, our research revealed a 10% increase in festive spending compared to previous years, with certain retailers even reporting record-breaking performances. However, this optimistic picture is somewhat clouded by inconsistent data.

In reality, retail growth in December hovered around 3% according to the BRC, with some help from the tail of Black Friday. The contrast to the 10% above reflects that much of the spending was directed toward celebrations and leisure rather than pure retail.

When broken down by category, it was clear that food and drink topped shoppers’ lists, with health and beauty not far behind. Clothing saw some volume growth, thanks in part to significant promotions, but areas such as children’s toys and pet products didn’t fare as well.

Looking ahead to a subdued and uncertain market, there are reasons to be both cautious and optimistic. Inflation has stabilised and we are slowly seeing interest rates fall.

Generally, the population feels slightly better off, particularly with national living wage rises and national insurance contributions cuts benefiting working people, while the older and more affluent feel most financially secure. Add to that improved spending intentions compared to last year, weak comparatives, and replacement cycles, and there are reasons to be hopeful.

On the other hand, inflation remains a concern, as does income insecurity, the financial divide between the old and young, and the more and less affluent. We’re also likely to see holidays and savings prioritised over retail, leading to long-term low market growth forecasts for most of the sector.

The landscape is likely to remain challenging but also ripe with opportunities for those willing to pivot towards growth. In fact, our recent UK chief executive survey revealed that two-thirds of business leaders are developing new business capabilities or operating models in pursuit of growth.

The key is to protect the core business while unlocking new avenues for expansion, and there are several levers at retailers’ disposal.

Reinforcing value credentials and ensuring that products are perceived as value-for-money is crucial.

For fashion, that could mean maintaining competitive entry-level prices to increase brand accessibility, while grocery retailers might focus on offering a basket of SKUs at competitive price points – as well as opportunities to trade up to premium products.

By focusing on their most profitable customers, retailers can target increasing their share of wallet, capturing more spending through current product ranges and extensions, leveraging customer data for hyper-personalised experiences. There may even be opportunities to explore new business models, like marketplaces or retail media estates to provide new revenue streams.

Elsewhere, nostalgia can be a powerful tool, particularly as we tend to look to the past in turbulent times. By focusing on a brand’s heritage, unique selling propositions, and modernising proven products, retailers can tap into a sense of familiarity while introducing new innovations. I have just seen that Asda is returning to the pocket tap, ‘that’s Asda price’ slogan and Rollback price cuts.

As we move through the year, I expect to see a shift towards more positive economic indicators and increased consumer spending. While the ‘vibecession’ seems to be lingering, I believe things will be more positive as we head into summer. In fact, I’m planning some big-ticket spending myself around that time, finally tackling the building work I’ve been putting off!

There are also ample opportunities for those willing to innovate and adapt. The UK remains an attractive market – our chief executive survey revealed it trails only the US as a destination where global chief executives plan to invest capital expenditure.

With overseas competitors eyeing expansion here, it becomes even more crucial for local retailers to proactively pursue growth strategies. By truly understanding customer insights, embracing nostalgia, and exploring new business models, retailers will not only succeed now, but in the future.