How are retailers navigating rising costs and inflation?

It’s safe to say that the UK consumer is facing one of their toughest years to do date. Inflation is currently at a 40 year high at 9.1%, and experts are warning that this could reach 11% within months. We’re experiencing record-high fuel and energy prices, which are set to worsen in the Autumn when the energy price cap will rise again. The cost of essential groceries is also higher, with the Institute of Grocery Distribution (IGD) forecasting that food inflation could reach 15% this summer. According to figures from the British Retail Consortium and KPMG, total sales decreased by 1% in the five weeks between 29th May and 2nd July, against an increase of 10.4% in June 2021. This follows declines in both April and May. And, as part of the knock-on impact, experts are warning that the economy could soon fall into recession.

While we’re uncertain just what impact this challenging period will have on the retail landscape, we’re optimistic in its resilience. Our deep-rooted need for human interaction means that physical retail will continue to hold an integral place in the way we shop, and as brands and retailers need to work harder to encourage consumers to part with their hard-earned cash, it’s likely we’ll continue to see a rise in the creative and innovative retail display concepts and in-store experiences, breathing new life into the high street.

In our inaugural edition of the Global Retail Futures Journal, we predicted a surge in the global travel retail market, with consumers eager to travel and holiday abroad, having had opportunities restricted through the pandemic. Although the staff shortages and disruption hasn’t quite made for the smooth sailing resurgence we’d hoped for, the sector has certainly picked up, with footfall in airports almost resembling the pre-Covid era. Despite tightening purse strings, holidays seem to remain a priority expense for many consumers this summer. And, many hopeful travellers are pre-empting delays and disruption, getting to the airport earlier than they normally would and (queues and security depending!) spending longer eating, drinking, and browsing shops before they board their flight. We’re seeing lots of creative new concepts in this space (the Valentino Beauty pop-up at Paris Charles de Gaulle is one great example) as well as a rise in omnichannel shopping experiences, allowing customers to browse and purchase online and pick up in the airport.

We also highlighted the home improvements and DIY sector as one to remain buoyant. Through lockdowns, specialist DIY stores and outlets saw sales soar, and as a result of improved confidence DIY projects in the home, we’re expecting to see a ‘halo effect’, with consumers feel able to tackle further projects. To appeal to the budding DIYers on a budget, IKEA owner has launched a new ‘Library of Things’ platform to allow customers to rent items such as drills, sound systems, and sewing machines, giving them access to the equipment they need while reducing waste and CO2 emissions.

The coming months are undoubtedly going to be challenging for the sector, with brands and retailers also dealing with inflation and rising costs while trying to drive sales and remain profitable. But, whatever strategy they take, remaining authentic to who and what the brand is all about will be key to their success.