The UK retail trade has navigated a number of intervals 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 adjustments.
Be a part of Mintel as we offer a snapshot of the UK retail market panorama – together with perception into different international areas – highlighting alternatives, challenges and rising tendencies that can outline the trade’s trajectory within the close to future. For a complete retail trade evaluation, masking 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 Trade
The UK retail market skilled a second consecutive 12 months of excessive inflation in 2023, resulting in a concentrate on important objects and a difficult setting for discretionary classes. Whereas retail gross sales grew in worth phrases, this development masked an underlying quantity decline.
Shifting ahead, Mintel’s retail trade insights reveal that the market is anticipated to point out 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, range and worth notion amongst shoppers. In distinction, brick-and-mortar shops face ongoing challenges, together with decreased foot 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 line with Mintel’s Supermarkets Market Analysis, the grocery market measurement is anticipated to develop to £241 billion in 2028. Nevertheless, this doesn’t imply shoppers aren’t adopting savvy procuring behaviours in response to the elevated costs, with 73% of UK shoppers spending extra time on the lookout for the most effective 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 vogue noticed an uptick in quantity development in 2024. This upswing could be attributed to a weaker comparative efficiency in vogue 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 preserve 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 way in which is Marks & Spencer, which has added magnificence retailer Estee Lauder Perfume and launched its personal Contemporary Components skincare vary to its choices.
As seen throughout different occasions of financial adversity, the “Lipstick Impact” struck once more. Shoppers, going through more durable occasions, turned to the retail remedy of magnificence merchandise, indulging in reasonably priced luxuries to brighten a bleak financial image. Magnificence and private care buy exercise stays regular inside the retail market, with 9 in ten UK shoppers making BPC purchases in-store. Nevertheless, on-line purchases are on the rise, with three-fifths of Brits making on-line BPC purchases. One motive behind this improve is that buyers can learn critiques and evaluate merchandise freely. Related in-store shopping for tendencies will also be discovered throughout the pond, with two-thirds of Canadian class consumers having made a BPC buy at a drug retailer and virtually seven in ten US Individuals want 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 increase seen through the pandemic, when the nation had extra time to spend at residence on account of lockdowns, giving them a chance to finish DIY tasks . The price of residing disaster has hampered shoppers’ discretionary spending and led shoppers to prioritise spending areas exterior of residence enchancment, leading to a decline in quantity phrases in main residence classes akin to furnishings, family home equipment, and DIY. In a bid to diversify, the DIY retail market has shifted their advertising and marketing and innovation efforts in the direction of smaller ticket residence enchancment tasks akin to portray and adorning, to assist shoppers 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. Though the expansion of the net market was behind the expansion of the broader retail sector, three-quarters of UK web shoppers say that the most effective 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 plenty of extra could be present in our full Retail Rankings 2024 Report.
Retail Trade Developments and Alternatives
Enhanced client expertise by neighborhood retail
Retail areas are evolving to offer extra than simply merchandise; they’re changing into neighborhood hubs, locations the place shoppers can have interaction in enriching experiences. This contains 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 Avenue, London in 2023. The shop brings Gymshark’s practical health however enjoyable ethos to life by internet hosting experiential parts, 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 increase into the bodily area, one thing which is crucial for the way forward for the excessive avenue.
The rise of the round economic system
Client demand for sustainability and round economic system practices is multiplying throughout the UK retail market. As shoppers develop into extra environmentally aware, they appear to retailers to steer by instance to supply eco-friendly merchandise and scale back the dimensions of their carbon footprint. One notable sustainable retail trade pattern is the rising curiosity within the secondhand economic system. Mintel’s retail trade insights report UK Model Overview reveals that two-fifths of shoppers have bought secondhand merchandise. Even within the US, the secondhand market is anticipated 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 Individuals have beforehand chosen to purchase a refurbished telephone, and Mintel predicts this can proceed to rise, particularly amid occasions of monetary turbulence. Manufacturers are inspired to leverage this pattern to construct buyer loyalty, enchantment to shoppers’ money-saving pursuits and display sustainability commitments.
One standout retailer who’s innovating on this area is the Finnish model Swappie which launched merchandising machines that permit shoppers to purchase, promote, or recycle second-hand smartphones, aiming to extend the reuse and recycling of outdated telephones. This mannequin provides 24/7 entry and comfort, encouraging round habits amongst shoppers.
This round follow 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, shoppers can align their environmental values by selling reuse, decreasing the demand for brand spanking new manufacturing and contributing to a extra round vogue trade. The German model Zalando is a good instance of an organization pushing vogue into larger circularity. In 2021, Zalando rolled out a care and restore service to interact with shoppers post-purchase and to assist prolong product life as a lot as attainable. Schemes like this enchantment to shoppers’ heightened concentrate on eco-friendly pursuits whereas constructing a brand-consumer relationship constructed on belief and longevity.
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Expertise adjustments the retail procuring expertise ceaselessly
Staying aggressive within the retail sector requires steady innovation. Which means a multiplying variety of retailers are introducing tech-driven services to assist entice new prospects and improve buyer loyalty. Improvements akin to AI-powered customer support will help monitor client preferences and in flip, make real-time suggestions which are personalised to the person. An instance of a standout initiative was B&Q and Screwfix’s proprietor Kingfisher who just 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 tasks, the AI assistant supplies step-by-step recommendation on a spread of residence enchancment tasks in addition to tailor-made product suggestions. This use of AI completely illustrates how procuring experiences could be uniquely personalised and will help improve general buyer satisfaction.
Challenges for Manufacturers within the Retail Trade
- Financial uncertainty and client savviness
Confronted with rising inflation, manufacturers within the retail market must persistently display worth to shoppers, which is able to assist alleviate the financial strain forcing cutbacks in discretionary spending. Publish-pandemic, shoppers have adopted savvy procuring behaviours and develop into extra value-conscious, typically looking for the most effective costs by on-line analysis and social media critiques. Since Mintel predicts that this pattern is more likely to persist, retailers might want to concentrate on offering aggressive pricing and worth propositions akin 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 offer chain resilience stays a crucial difficulty 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 elements akin to geopolitical instability, logistical challenges, and uncooked materials shortages. Rising prices and provide shortages will proceed to problem each the retailer and the patron since elevated operational prices restrict retailers’ potential to guard costs for the patron. 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 have to implement sturdy safety measures akin to encrypted knowledge storage, common audits and cross-company worker coaching packages to safeguard delicate data and preserve client belief.
As mentioned earlier on this article, the impression of AI in customer-facing areas inside 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 shoppers not realizing a lot about AI, though they’re conscious of the time period. Whereas there may be nonetheless scepticism and distrust from shoppers round AI, manufacturers should resist the temptation of accelerating the adoption course of and as an alternative strategy it with warning and set up clear communication when AI is used. In line with Mintel’s Digital Lives of Shoppers Report, over three-quarters of UK shoppers agree that corporations ought to make it clear when interactions contain AI. These findings reveal a need 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
Wanting forward, the way forward for retail lies in cautious adaptation. Whereas technological developments supply 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 major alternative for retailers. By embracing these tendencies, manufacturers can showcase their dedication to environmental duty and construct stronger, long-term relationships with shoppers. Financial downturns undoubtedly result in savvier procuring habits, nevertheless, as client confidence and disposable earnings 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 12 months, analysing:
- Sale densities: Establish high performers and benchmark your individual gross sales technique.
- Retailer efficiency: Uncover key tendencies and improvements shaping the market.
- Class breakdowns: Acquire insights into particular segments driving the UK retail panorama.
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