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A cost of living crisis, or a fall in disposable income has been taking place in the UK since late 2021; driven primarily by inflation.
According to the Institute for Government, energy prices have been a 'particular flashpoint for the crisis'.
There are some areas where these impacts are clear, such as Petrol, where the cost of filling a tank has risen to over £100 for the first time, or in energy prices, which has seen substantial increases blamed on wholesale price increases.
We were keen to understand how retailers are planning to weather the storm and to understand their outlook and their preparations.
We asked retailers which areas of their business they were most concerned about.
Over 75% of respondents report that Basket Spend and Profits were likely to be most impacted areas which is unsurprising. People with less money to spend will still visit (17% of respondents were concerned about Footfall) but they will spend less while in-store, either buying fewer products or selecting cheaper alternatives - hitting profits.
The 1% of retailers who reported Other concerns made reference to quality of life for their customers and worries about the costs of energy bills.
Retailers remain pragmatic in the face of this challenge with over 50% looking to use promotions to encourage sales and 44% working on their store and range.
The government have put forward a range of proposals designed to ease the cost of living pressure on ordinary consumers, however responses from industry and advocacy groups has been tepid at best.
Their support package includes:
- Help with energy bills via rebates
- Cost of living payments to benefits recipients, pensioners and those with a disability
- A household support fund for those not eligible for other help
- An increase to the National Insurance contribution threshold to £12,570 from July 2022
- Reduction in National Insurance contributions for lower-earning self-employed people
- Reducing the Universal Credit taper rate
- Cutting fuel duty and freezing alcohol duty
The response from retailers seems to mirror that of other commentators with 90% suggesting that the help offered so far does not go far enough to have a major impact.
Many are expecting the squeeze on disposable income to continue into the foreseeable future and some are also suggesting that it will get worse as the effect of increasing prices ripples through the wider economy. Some in the independent retail channel also point the finger at their larger competitors, whose deep pockets and influence may make matters worse throughout as food production becomes less viable.
A common response from these retailers was that customers are likely to reduce visits to the more distant supermarkets and take advantage of their closer options in the face of higher fuel costs, even if it means more frequent outings. One respondent provided anecdotal evidence of this, seen below.
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