The UK retail trade has navigated a number of durations of client uncertainty, together with the pandemic and the price of residing disaster. Over the following couple of years, the retail trade will endure vital transformation, formed by evolving client behaviours, technological developments and potential political and financial modifications.
Be part of Mintel as we offer a snapshot of the UK retail market panorama – together with perception into different world areas – highlighting alternatives, challenges and rising tendencies that may outline the trade’s trajectory within the close to future. For a complete retail trade evaluation, overlaying 18 retail sectors, together with how the ten largest retailers within the UK have ranked towards each other for the previous 5 years, you should purchase our UK Retail Rankings 2024 Report.
Financial Outlook of the UK Retail Business
The UK retail market skilled a second consecutive yr of excessive inflation in 2023, resulting in a give attention to important gadgets and a difficult setting for discretionary classes. Whereas retail gross sales grew in worth phrases, this development masked an underlying quantity decline.
Transferring ahead, Mintel’s retail trade insights reveal that the market is predicted to indicate a mixture of conservation and average development, buoyed by rising client confidence and elevated disposable incomes. Nevertheless, the efficiency throughout completely different sectors varies. E-commerce continues to develop, albeit behind the broader retail sector, recording a 3.9% improve in on-line gross sales, pushed by the comfort, variety and worth notion amongst customers. In distinction, brick-and-mortar shops face ongoing challenges, together with diminished foot site visitors and heightened operational prices.
UK Retail Market: Sector Efficiency
The inherent necessity of the grocery sector implies that the demand for this class remained insulated and comparatively steady, even throughout monetary turndowns. In response to Mintel’s Supermarkets Market Analysis, the grocery market measurement is predicted to develop to £241 billion in 2028. Nevertheless, this doesn’t imply customers aren’t adopting savvy purchasing behaviours in response to the elevated costs, with 73% of UK customers spending extra time searching for the perfect offers in meals shops. Correspondingly, the German meals discounters Aldi and Lidl each secured a spot within the high 10 retailers within the UK.
Whereas grocery demand continued to outpace non-food classes, store-based style noticed an uptick in quantity development in 2024. This upswing could be attributed to a weaker comparative efficiency in style retail throughout 2023 and stronger client demand as out-of-home footfall recovered, boosted by over six in ten Era Z and Millennials having purchased garments in-store within the final 12 months. To assist keep post-pandemic curiosity, a number of clothes specialists are increasing into new classes like magnificence and private care to spice up income alternatives. Main the best way is Marks & Spencer, which has added magnificence retailer Estee Lauder Perfume and launched its personal Recent Parts skincare vary to its choices.
As seen throughout different instances of financial adversity, the “Lipstick Impact” struck once more. Customers, dealing with harder instances, turned to the retail remedy of magnificence merchandise, indulging in inexpensive luxuries to brighten a bleak financial image. Magnificence and private care buy exercise stays regular throughout the retail market, with 9 in ten UK customers making BPC purchases in-store. Nevertheless, on-line purchases are on the rise, with three-fifths of Brits making on-line BPC purchases. One cause behind this improve is that customers can learn opinions and examine merchandise freely. Related in-store shopping for tendencies will also be discovered throughout the pond, with two-thirds of Canadian class patrons having made a BPC buy at a drug retailer and virtually seven in ten US People favor to buy in-store, expressing a choice for sampling merchandise earlier than buying.
The upper ticket residence classes have struggled in 2023/4, reporting a decline compared to the numerous enhance seen throughout the pandemic, when the nation had extra time to spend at residence because of lockdowns, giving them a possibility to finish DIY initiatives . The price of residing disaster has hampered customers’ discretionary spending and led customers to prioritise spending areas exterior of residence enchancment, leading to a decline in quantity phrases in main residence classes similar to furnishings, family home equipment, and DIY. In a bid to diversify, the DIY retail market has shifted their advertising and innovation efforts in the direction of smaller ticket residence enchancment initiatives similar to portray and adorning, to assist customers replace their areas in a budget-friendly nature.
On-line gross sales have settled post-pandemic, with occasional spikes throughout occasions like Black Friday. The proportion of on-line gross sales has stabilised at round 25-27% of whole retail gross sales in 2024. Regardless that the expansion of the web market was behind the expansion of the broader retail sector, three-quarters of UK web shoppers say that the perfect costs are discovered on-line, serving to the sector insulate demand with a optimistic worth notion.
A full and complete breakdown of 18 retail sectors and main retailers’ efficiency in these sectors, together with Footwear to Meals, and Well being and Magnificence to Homeware and lots of extra could be present in our full Retail Rankings 2024 Report.
Retail Business Traits and Alternatives
Enhanced client expertise by way of neighborhood retail
Retail areas are evolving to offer extra than simply merchandise; they’re changing into neighborhood hubs, locations the place customers can interact in enriching experiences. This consists of creating areas for socialising, studying and internet hosting neighborhood occasions, which helps to construct emotional connections between the retailer and client and due to this fact improve buyer engagement and loyalty. One retailer that’s efficiently innovating on this rising neighborhood retail area is Gymshark. Based in 2012 as an online-only direct-to-consumer (DTC) model, Gymshark opened its flagship retailer in Regents Road, London in 2023. The shop brings Gymshark’s purposeful health however enjoyable ethos to life by internet hosting experiential components, from one-to-one private coaching stations to in-store Sweat Lessons. This health model’s entry into bodily retail will hopefully encourage brave strikes from different online-first manufacturers to broaden into the bodily area, one thing which is crucial for the way forward for the excessive road.
The rise of the round economic system
Shopper demand for sustainability and round economic system practices is multiplying throughout the UK retail market. As customers change into extra environmentally aware, they give the impression of being to retailers to guide by instance to supply eco-friendly merchandise and scale back the dimensions of their carbon footprint. One notable sustainable retail trade development is the rising curiosity within the secondhand economic system. Mintel’s retail trade insights report UK Model Overview reveals that two-fifths of customers have bought secondhand merchandise. Even within the US, the secondhand market is predicted to develop, notably within the smartphone sector, influenced by the notion that smartphone innovation has peaked (alongside the monetary and environmental advantages). Over a 3rd of US People have beforehand chosen to purchase a refurbished telephone, and Mintel predicts this can proceed to rise, particularly amid instances of economic turbulence. Manufacturers are inspired to leverage this development to construct buyer loyalty, attraction to customers’ money-saving pursuits and show sustainability commitments.
One standout retailer who’s innovating on this area is the Finnish model Swappie which launched merchandising machines that enable customers to purchase, promote, or recycle second-hand smartphones, aiming to extend the reuse and recycling of previous telephones. This mannequin gives 24/7 entry and comfort, encouraging round habits amongst customers.
This round apply extends into the style sector the place virtually half of Germans and 16-34-year-old Brits have purchased secondhand garments. By shopping for secondhand garments, customers can align their environmental values by selling reuse, decreasing the demand for brand spanking new manufacturing and contributing to a extra round style trade. The German model Zalando is a good instance of an organization pushing style into greater circularity. In 2021, Zalando rolled out a care and restore service to interact with customers post-purchase and to assist lengthen product life as a lot as doable. Schemes like this attraction to customers’ heightened give attention to eco-friendly pursuits whereas constructing a brand-consumer relationship constructed on belief and longevity.
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Know-how modifications the retail purchasing expertise endlessly
Staying aggressive within the retail sector requires steady innovation. Which means a multiplying variety of retailers are introducing tech-driven services and products to assist appeal to new prospects and improve buyer loyalty. Improvements similar to AI-powered customer support can assist observe client preferences and in flip, make real-time suggestions which can be personalised to the consumer. An instance of a standout initiative was B&Q and Screwfix’s proprietor Kingfisher who lately launched the primary AI-powered assistant within the residence enchancment and DIY sector. Utilizing generative AI to help prospects at residence with their DIY initiatives, the AI assistant offers step-by-step recommendation on a spread of residence enchancment initiatives in addition to tailor-made product suggestions. This use of AI completely illustrates how purchasing experiences could be uniquely personalised and can assist improve general buyer satisfaction.
Challenges for Manufacturers within the Retail Business
- Financial uncertainty and client savviness
Confronted with rising inflation, manufacturers within the retail market must persistently show worth to customers, which can assist alleviate the financial strain forcing cutbacks in discretionary spending. Submit-pandemic, customers have adopted savvy purchasing behaviours and change into extra value-conscious, typically in search of the perfect costs by way of on-line analysis and social media opinions. Since Mintel predicts that this development is more likely to persist, retailers might want to give attention to offering aggressive pricing and worth propositions similar to specializing in effectivity, multifunctional merchandise with long-lasting claims, loyalty schemes and trial choices.
- Ongoing provide chain points
Mintel’s Retail Rankings 2024 Report outlines that provide chain resilience stays a crucial concern for retailers. Greater than half of retail executives are involved about provide chain disruptions impacting their operations in 2024/25. These disruptions are attributed to components similar to geopolitical instability, logistical challenges, and uncooked materials shortages. Rising prices and provide shortages will proceed to problem each the retailer and the buyer since elevated operational prices restrict retailers’ means to guard costs for the buyer. To mitigate this problem, retailers must implement superior provide chain analytics to help sustaining provide, along with diversifying suppliers by supporting native manufacturers.
- Technological integration
The retail trade’s digital transformation has heightened the sector’s vulnerability to cyber threats, with vital incidents reported to the Data Commissioner’s Workplace. Retailers face an essential stage of their digitalisation the place they need to implement sturdy safety measures similar to encrypted information storage, common audits and cross-company worker coaching packages to safeguard delicate info and keep client belief.
As mentioned earlier on this article, the impression of AI in customer-facing areas throughout the retail market is rising quickly. Nevertheless, the tempo at which retailers plan to leverage AI capabilities is outpacing client consciousness, with almost a 3rd of customers not realizing a lot about AI, although they’re conscious of the time period. Whereas there may be nonetheless scepticism and distrust from customers round AI, manufacturers should resist the temptation of accelerating the adoption course of and as an alternative method it with warning and set up clear communication when AI is used. In response to Mintel’s Digital Lives of Customers Report, over three-quarters of UK customers agree that corporations ought to make it clear when interactions contain AI. These findings reveal a want for manufacturers to be clear and upfront about AI involvement, which ought to assist manufacturers handle client expectations and foster belief for a extra optimistic expertise.
Innovate within the Retail Market with Mintel
Trying forward, the way forward for retail lies in cautious adaptation. Whereas technological developments provide thrilling potentialities, the tempo of change should align with client consolation. Moreover, the rising curiosity within the round economic system and sustainable practices presents a big alternative for retailers. By embracing these tendencies, manufacturers can showcase their dedication to environmental duty and construct stronger, long-term relationships with customers. Financial downturns undoubtedly result in savvier purchasing habits, nevertheless, as client confidence and disposable revenue rise, a promising path lies forward for the retail trade.
Curious the place your model stands towards the UK’s high retailers? Our Retail Rating Report 2024 delivers a deep dive into the previous yr, analysing:
- Sale densities: Determine high performers and benchmark your personal gross sales technique.
- Retailer efficiency: Uncover key tendencies and improvements shaping the market.
- Class breakdowns: Achieve insights into particular segments driving the UK retail panorama.
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