Retail Briefing 2020 - Highlights

A new decade in Retail; What the retail sector might look like in 2020 and how to thrive in a changing environment

This year, our Retail Briefings brought together leading retailers at breakfast events across the UK to assess how the retail sector fared in 2019, and discuss what it might look like in 2020 and how they can thrive in a changing environment.

2019 was another tough year in the retail sector. We saw political and economic uncertainty affect consumer confidence and poor weather impact high-street footfall, creating an even more difficult trading environment. But it wasn’t all bad news: we saw a record-breaking Black Friday weekend and significant success for certain online and high-street retailers across the Golden Quarter.

While we may see similar challenges in the year ahead, there are opportunities in the sector for those retailers that can get it right. The dawn of a new decade looks set to be another demanding year for retail, but we believe there are reasons to be optimistic for responsive and agile retailers.

At each event, we surveyed attendees on what they thought their biggest challenges would be in 2020. Across all events, the three most consistent challenges were sustainability, costs reduction, and management of store and lease portfolios. Our Retail Outlook 2020 looks at each of these areas in detail and provides strategies to help retailers succeed in the year ahead.

Of those retailers, investors and intermediaries polled at our nationwide events, 55% put sustainability in their top 3 strategic priorities for 2020, whilst 45% cited cost reduction and 37% mentioned optimising their store estates

Christmas trading results flat

In our review of 2019, we looked at whether this year was, in fact, the worst year on record for retail. In short: it wasn’t. There were negatives, such as record store closures, profits warnings, CVAs and administrations, and volatile consumer sentiment. But we also saw positives, such as wage growth, the rebound of consumer sentiment, positive growth for pubs and restaurants and a narrowing gap between winners and losers in each retail category.

The weather may have had an effect on Christmas sales, but it was Black Friday that had the biggest impact, cannibalising December trading, despite many retailers’ discipline with promotional activity throughout December.

All in all, December trading was flat. Consumers looked for practical gifts - such as books, home-first products and sportswear - and shopped with retailers that would give them a reason to spend: value for spend, a great experience and the option to buy what they wanted, when and how they wanted it, with financing options to suit.

The real surprise was in grocery, which saw its toughest Christmas for 5 years, with implied like for like (-1.5%) volume and total volume (-0.8%) both down.

In a tough market, winners were millennial fashion brands, premium department stores, menswear and retailers offering credit. Losers got the basics wrong: failing to know their customers, having too much stock and providing little value for money. In a tough market, there are still chances for success for those retailers that know their customers well and invest in their proposition, whether product ranges, stores or prices.

This year, we expect to see sustainability going mainstream (not just in the products, but throughout the supply chain), inclusiveness being adopted by premium brands, and a continuing trend for localisation and partnerships.

Positive consumer sentiment as priorities change

Despite economic forecasts, consumers nationwide expect to be financially better off in the next 12 months, showing a significant improvement on sentiment. Our most recent Consumer Sentiment survey shows that for the first time in five years, net sentiment is up from -7 to +3, reflecting the impact that growing wages and stable employment, low interest rates and political certainty has had on UK shoppers.

With this improvement in sentiment, we’re seeing a change in consumer spending priorities. Though grocery remains the top spending priority for most, many of us expect to economise, by continuing to reduce waste or shop around. And consumers are planning to shop smarter in general in 2020, with many planning to cut back on grocery (30% will waste less and 29% plan to shop around more) and fashion (33% will buy less and 24% will buy less often), possibly reflecting an increasing interest in sustainability awareness.

In categories that we’ve been cutting back are growing in importance, especially holidays and home improvements. For under-35s, health and well-being is a top-three spending priority, while, for under-25s, fashion has entered the top three, perhaps explaining the continued outperformance of young online fashion retailers over the Christmas period.

Another emerging trend is a shift toward sustainability and ethical consumerism. Though only 48% of consumers considered sustainability in their Christmas shopping, it was significantly higher among the young, with 73% of under-25s choosing more sustainable gifts, including buying secondhand or giving homemade presents.

This year, we’ll see the rise of the ‘considered consumer’. Although confidence is back, consumer spending will be restrained and it may be a battle for share of wallet. With higher consumer confidence and more disposable income, it’s not that consumers can’t spend, it’s that retailers need to give them a reason to part with hard-earned cash in an otherwise flat market.

Little economic growth in 2020

The UK economy slowed in 2019, because of weaker global growth - particularly in the US, China and the Eurozone - and Brexit-related uncertainties. Consumer spending, however, did grow on the back of high employment levels, wages rising faster than inflation and low interest rates.

For 2020, our economists predict that UK GDP growth will be around 1%, with consumer spending growth similar at 1.2%. We’ll see this growth across all UK regions, and expect that consumers will have access to more disposable income.

Against these predictions, however, there are significant uncertainties such as Brexit and continuing global economic risks. As we head into 2020 with a slowing global economy and an uncertain outlook for the UK, most economists are forecasting little or no growth this year. So, even though consumers are confident and have more money in their pockets, given the external environment, the best retailers should expect is little or no growth in the market this year, similar to 2019.

Contact us

Lisa Hooker

Leader of Industry for Consumer Markets, PwC United Kingdom

Tel: +44 (0) 7802 882 562

Kien Tan

Director, Retail Strategy, PwC United Kingdom

Tel: +44 (0)20 721 23910

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