Sector trends

Retail and leisure outlook for 2023

In this year’s annual research with Retail Economics we reveal the top retail industry and consumer trends for UK organisations in 2023.

The uncertain economic backdrop continues to impact retail and leisure spending in 2023. Our research with Retail Economics shows many shoppers have already adopted recessionary behaviours, for example, by cutting back their spending on non-essentials, trading down to cheaper alternatives, or cancelling spending altogether.

But with disruption and shocks to consumer behaviour, comes opportunity.

Data at a glance

  • 56.4% of consumers expect their personal finances to weaken over the next year
  • 28.2% plan to cut almost all spending on furniture and flooring
  • 48% are looking to trade down on food and drink
  • 44% with mortgages worry about rising interest rates
  • The least affluent are five times more likely to spend a greater proportion of their expenditure in-store
  • 42.5% of workers now adopt hybrid working patterns
  • Work-from-home consumers are three times more likely to expect stronger finances in 2023, but 60.1% of them worry about housing costs

What’s shaping consumer spending in 2023?

The consumer panel data in our new report helps us understand numerous factors shaping today’s business environment. These are the five key trends impacting consumer-facing businesses:

  1. Recessionary shopping
  2. Shifting inequality across households
  3. Stores adopting digital
  4. Future of work
  5. Considered choices and sustainable shopping

During the cost of living crisis, consumers have been adapting their behaviour by putting value at the heart of their decision-making.

The data shows people trading down to cheaper alternatives, delaying large purchases, focusing on essentials and discount hunting as budgets are squeezed and personal finances weakened in some households.

These consumer motivations will be important for businesses to address in 2023.

What do we know about intentions to shop more in-store?

Shoppers are reverting to physical stores across categories that faced a drastic shift online during the pandemic, particularly food. Many consumers are seeking the comfort of traditional shopping habits during distressed times.

When they’re on site, our research with Retail Economics also shows consumers will be expecting a seamless transition between in-store and online, as well as more convenient payment options. A quarter of consumers want more convenient payment options such as mobile payment devices, for example.

Meanwhile, the erosion of budgets for non-essentials is motivating some consumers to exert more ‘willpower’ over their spending. This may involve avoiding tempting online offers, for example. In another finding, consumers were looking to spend more in-store over the next year to avoid online delivery and return fees, as well as minimum order spends.

How is hybrid working shaping consumer behaviour in 2023?

Typical spending habits have been impacted by the pandemic, as 42.5% of workers now adopt hybrid working patterns. With changes to the labour market being felt on footfall rates, a rebalance is happening in-store.

Our report shows the picture isn’t necessarily straightforward though: while the work environment remains in a state of flux, so too does the distribution of spending among this cohort of consumers.

The research found those expecting to work from home over the next year are increasingly likely to visit local stores, while those anticipating attending workplaces more are driving city and shopping centre footfall.

Work-from-home consumers are three times more likely to expect stronger finances in 2023, but 60.1% of them worry about housing costs.

This more affluent consumer segment is also relying on digital touchpoints in physical locations. The importance and reliance of digital technology is key here: touchpoints include retailer apps for stock checking, store location finding, in-store product navigation and click-and-collect.

Which consumers are driving the demand for sustainability and are willing to pay for it?

A more sustainability-conscious consumer is emerging. Their behaviour is being influenced by extreme weather events, the UK’s 2050 net zero commitment, and growing awareness of the environmental impacts of over consumption.

The data shows younger shoppers (who are becoming more economically significant) have the greatest intentions to shop more sustainably, although their actions do not always follow accordingly.

  • While younger shoppers are the least likely to have made any changes in reducing their environmental impact, 44% intend to in future.
  • A high 84% of the youngest consumers would shop more with those retailers and hospitality businesses demonstrating strong sustainable values.
  • Younger shoppers are three times more likely to pay more for products from businesses with strong ethical and environmental values, compared with older consumers.

What do these figures show us? That there is a growing demand for consumer-facing industries to make credible changes and adopt more sustainable practices.

Five strategies to survive and thrive in 2023

Please take the time to read the report to consider how the findings relate to your own business, plus strategies for better navigating the oncoming headwinds. Or read our summary, below.

1. Building business resilience

Against a backdrop of rising costs and faltering demand, consumer-facing businesses will be tasked with making difficult trade-offs as cost-cutting measures are pitted against investment, marketing and growth opportunities. Business leaders will be looking at cost cutting and margin protection; differentiating the customer experience; and supply chain efficiencies.

2. Implement intelligent pricing architecture

These include lower price entry points to help drive footfall into stores and an assortment of strategies that offer attractive price points, including lower-cost items and higher-margin options.

There’s also dynamic pricing: leveraging data science and analytics capabilities can identify where consumers are most price sensitive and which categories will have the least impact on profitability from price rises.

3. Diversify, partner and acquire

Within this segment we have identified how international expansion could emerge as a valuable strategy in 2023. Other strategies include win-win partnerships, where brands unite to secure value in weaker operational areas. There’s also retail media, and acquisition opportunities to increase capacity and capability.

4. Use ESG to your advantage

As more businesses make carbon commitments, demonstrating ESG (environmental, social, and governance) compliance is rapidly becoming a minimum expectation for many consumers and investors. Those unable to demonstrate adherence increasingly run the risk of reputational damage. Here, we highlight how investing in sustainability across the value chain, the circular economy, and accessing green finance play a part.

5. Leveraging data and AI

Using AI (artificial intelligence) to leverage the value of customer data will become essential during 2023 as more businesses form strategic partnerships with tech companies to help complete in a volatile marketplace. In this section of our report, we look at predictive analytics, personalisation, and chatbots.

Executive summary

“It feels like a long time since we have operated in any sort of normality. Market events have been unprecedented and for many the focus has been on simply surviving. For the fifth successive year, I’m delighted to publish a report with Retail Economics. It focuses on the short-term outlook, what actions our peers are taking to mitigate the challenges we face and reasons why we should all be optimistic,” says our Head of Consumer Industries, David Scott.

“Retailers will face tough challenges throughout 2023 as softer consumer demand collides with a tougher trading environment. We’re delighted to partner on this outlook report, which focuses on the major headwinds facing the industry and what successful businesses are doing to navigate these choppy waters.

“As the retail landscape constantly evolves, retailer brands must be prepared to adapt to changes and embrace new technologies to stay ahead of the competition. Those that understand and respond appropriately to developments within the industry will be better positioned to weather further disruption and drive growth,” says Richard Lim, CEO at Retail Economics.

Retail Report 2023

Download the full report, which offers critical insight to help navigate these challenging times (PDF, 12MB)

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

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