the cost of living crisis is hitting people 'urgently and directly' – retail expert Q&A
- Written by Steven Vass, Business + Economy Editor, The Conversation (UK edition)
On top of rampant inflation, strikes, business gloom and rising interest rates, bad news[1] about our shopping habits was all but inevitable. The volume of goods being sold in the UK is now falling[2], according to the latest monthly data from the Office for National Statistics (ONS), with food purchases the number one culprit.
Consumer sentiment is at record lows for the second month running, according to the closely watched GfK consumer sentiment survey[3]. People are now more downbeat than in the depths of COVID or even during the global financial crisis.
With the UK economy already apparently[4] in the early stages of a recession, we asked retail specialist Professor Leigh Sparks from the University of Stirling for his perspective.
What’s the big picture?
Times are hard as people start to feel the effects of the soaring costs of consumer goods, energy and petrol – it was £1.97 for a litre in Stirling this morning. If you’ve seen a decline in your benefits, or you’re paying more in national insurance, or your pay is not keeping up with inflation, your income has reduced. This has been a multiple shock for people – in a very short period of time.
In food in particular, patterns are beginning to shift. We’re seeing tighter budgets[5] – for example reports of people putting things back at checkouts when they reach £30[6] in purchases. There’s some evidence of people switching to cheaper brands and stores[7]. Convenience stores are doing far better than big stores, as consumers search[8] for bargains and value. Also, ONS retail sales figures are often revised downwards.
UK retail trading volumes (year on year)
Aldi is tipped to overtake Morrisons as the fourth largest supermarket chain in the UK.
Paula Solloway/Alamy[18]
Where it becomes difficult to comment on individual retailers is because you don’t know their stock position. Many might have stock hangovers from COVID, and are therefore carrying high capital costs. They will have difficult decisions to make about offloading it, so there could be some real bargains for consumers.
Do we expect collapses?
There has been a shakeout in recent years of companies that either built too many stores or had high costs or just weren’t that good. So there may be casualties or there may not be.
Most management teams have never had to trade through high inflation. How quickly teams adapt will be the difference between surviving and not surviving. For example, high inflation changes how you have to manage cashflow. It changes the price at which you buy stock, how long you are willing to hold it for and how much you are willing to pay for storage.
Is there an optimists’ case?
There are still people who have money and are looking for interesting things to buy. During the pandemic, we’ve also seen good performances from local independents, and people thinking local, acting local and spending local – those are bright spots.
More generally, if we get on top of energy costs, including petrol, that would be a big shift: it would make consumers more positive and bring down inflation, and therefore some of the narrative would improve.
References^ bad news (www.ons.gov.uk)^ now falling (www.ft.com)^ GfK consumer sentiment survey (www.ftadviser.com)^ already apparently (www.theguardian.com)^ seeing tighter budgets (www.reuters.com)^ they reach £30 (www.walesonline.co.uk)^ and stores (www.chroniclelive.co.uk)^ consumers search (www.tescoplc.com)^ Trading Economics/ONS (tradingeconomics.com)^ much bigger percentage (www.statista.com)^ ridiculous spikes (www.gov.uk)^ Heatwaves (www.reuters.com)^ Some British facilities (www.ft.com)^ comparable to 1973 (en.wikipedia.org)^ close to 20% (www.macrotrends.net)^ Tiverton and Wakefield (www.telegraph.co.uk)^ food banks (www.trusselltrust.org)^ Paula Solloway/Alamy (www.alamy.com)
