The UK retail business has navigated a number of intervals of shopper uncertainty, together with the pandemic and the price of dwelling disaster. Over the following couple of years, the retail business will endure important transformation, formed by evolving shopper behaviours, technological developments and potential political and financial adjustments.
Be 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 traits that may outline the business’s trajectory within the close to future. For a complete retail business evaluation, masking 18 retail sectors, together with how the ten largest retailers within the UK have ranked in opposition to 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 yr of excessive inflation in 2023, resulting in a deal with important gadgets and a difficult setting for discretionary classes. Whereas retail gross sales grew in worth phrases, this progress masked an underlying quantity decline.
Transferring ahead, Mintel’s retail business insights reveal that the market is anticipated to point out a mixture of conservation and reasonable progress, buoyed by rising shopper confidence and elevated disposable incomes. Nonetheless, the efficiency throughout totally different sectors varies. E-commerce continues to develop, albeit behind the broader retail sector, recording a 3.9% enhance in on-line gross sales, pushed by the comfort, variety and worth notion amongst customers. In distinction, brick-and-mortar shops face ongoing challenges, together with decreased foot site 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 secure, even throughout monetary turndowns. In line with Mintel’s Supermarkets Market Analysis, the grocery market dimension is anticipated to develop to £241 billion in 2028. Nonetheless, this doesn’t imply customers aren’t adopting savvy purchasing behaviours in response to the elevated costs, with 73% of UK customers spending extra time on the lookout for one of the best 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 style noticed an uptick in quantity progress in 2024. This upswing could be attributed to a weaker comparative efficiency in style retail throughout 2023 and stronger shopper 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 keep 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 Parts skincare vary to its choices.
As seen throughout different instances of financial adversity, the “Lipstick Impact” struck once more. Customers, going through more durable instances, 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 customers making BPC purchases in-store. Nonetheless, on-line purchases are on the rise, with three-fifths of Brits making on-line BPC purchases. One purpose behind this enhance is that customers can learn opinions and examine merchandise freely. Related in-store shopping for traits may also be discovered throughout the pond, with two-thirds of Canadian class consumers having made a BPC buy at a drug retailer and nearly seven in ten US People want to buy in-store, expressing a desire 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 resulting from lockdowns, giving them a chance to finish DIY tasks . The value of dwelling disaster has hampered customers’ discretionary spending and led customers to prioritise spending areas exterior of residence enchancment, leading to a decline in quantity phrases in main residence classes equivalent 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 equivalent to portray and adorning, to assist customers 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. Although the expansion of the net market was behind the expansion of the broader retail sector, three-quarters of UK web shoppers say that one of the best 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 lots of extra could be present in our full Retail Rankings 2024 Report.
Retail Trade Developments and Alternatives
Enhanced shopper expertise via neighborhood retail
Retail areas are evolving to offer extra than simply merchandise; they’re turning into neighborhood hubs, locations the place customers can have interaction in enriching experiences. This consists of creating areas for socialising, studying and internet hosting neighborhood occasions, which helps to construct emotional connections between the retailer and shopper and subsequently improve buyer engagement and loyalty. One retailer that’s efficiently innovating on this rising neighborhood retail house 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 house, one thing which is important for the way forward for the excessive avenue.
The rise of the round financial system
Shopper demand for sustainability and round financial system practices is multiplying throughout the UK retail market. As customers turn into extra environmentally aware, they give the impression of being to retailers to guide by instance to supply eco-friendly merchandise and scale back the scale of their carbon footprint. One notable sustainable retail business development is the rising curiosity within the secondhand financial system. Mintel’s retail business insights report UK Model Overview reveals that two-fifths of customers 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 People have beforehand chosen to purchase a refurbished cellphone, and Mintel predicts this can proceed to rise, particularly amid instances of economic turbulence. Manufacturers are inspired to leverage this development to construct buyer loyalty, attraction to customers’ money-saving pursuits and exhibit sustainability commitments.
One standout retailer who’s innovating on this house is the Finnish model Swappie which launched merchandising machines that permit customers to purchase, promote, or recycle second-hand smartphones, aiming to extend the reuse and recycling of previous telephones. This mannequin affords 24/7 entry and comfort, encouraging round habits amongst customers.
This round follow extends into the style sector the place nearly half of Germans and 16-34-year-old Brits have purchased secondhand garments. By shopping for secondhand garments, customers can align their environmental values by selling reuse, decreasing the demand for brand spanking new manufacturing and contributing to a extra round style business. The German model Zalando is a good instance of an organization pushing style into greater circularity. In 2021, Zalando rolled out a care and restore service to interact with customers post-purchase and to assist lengthen product life as a lot as potential. Schemes like this attraction to customers’ heightened deal with eco-friendly pursuits whereas constructing a brand-consumer relationship constructed on belief and longevity.
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Expertise adjustments the retail purchasing 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 appeal to new prospects and improve buyer loyalty. Improvements equivalent to AI-powered customer support can assist observe shopper preferences and in flip, make real-time suggestions which can be 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 offers step-by-step recommendation on a variety of residence enchancment tasks in addition to tailor-made product suggestions. This use of AI completely illustrates how purchasing experiences could be uniquely personalised and can assist improve total buyer satisfaction.
Challenges for Manufacturers within the Retail Trade
- Financial uncertainty and shopper savviness
Confronted with rising inflation, manufacturers within the retail market must persistently exhibit worth to customers, which can assist alleviate the financial stress forcing cutbacks in discretionary spending. Publish-pandemic, customers have adopted savvy purchasing behaviours and turn into extra value-conscious, usually in search of one of the best costs via on-line analysis and social media opinions. Since Mintel predicts that this development is prone to persist, retailers might want to deal with offering aggressive pricing and worth propositions equivalent 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 important situation 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 components equivalent 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’ capacity 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 business’s digital transformation has heightened the sector’s vulnerability to cyber threats, with important incidents reported to the Info Commissioner’s Workplace. Retailers face an necessary stage of their digitalisation the place they need to implement strong safety measures equivalent to encrypted information storage, common audits and cross-company worker coaching applications to safeguard delicate data and keep shopper belief.
As mentioned earlier on this article, the influence of AI in customer-facing areas inside the retail market is rising quickly. Nonetheless, the tempo at which retailers plan to leverage AI capabilities is outpacing shopper consciousness, with almost a 3rd of customers not figuring out a lot about AI, regardless that they’re conscious of the time period. Whereas there’s nonetheless scepticism and distrust from customers 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 Customers Report, over three-quarters of UK customers agree that firms 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 shopper expectations and foster belief for a extra optimistic expertise.
Innovate within the Retail Market with Mintel
Trying forward, the way forward for retail lies in cautious adaptation. Whereas technological developments supply thrilling prospects, the tempo of change should align with shopper consolation. Moreover, the rising curiosity within the round financial system and sustainable practices presents a big alternative for retailers. By embracing these traits, manufacturers can showcase their dedication to environmental accountability and construct stronger, long-term relationships with customers. Financial downturns undoubtedly result in savvier purchasing habits, nonetheless, as shopper confidence and disposable revenue rise, a promising path lies forward for the retail business.
Curious the place your model stands in opposition to the UK’s high retailers? Our Retail Rating Report 2024 delivers a deep dive into the previous yr, analysing:
- Sale densities: Establish high performers and benchmark your individual gross sales technique.
- Retailer efficiency: Uncover key traits and improvements shaping the market.
- Class breakdowns: Achieve insights into particular segments driving the UK retail panorama.
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