Managing the next year must be about containing downturn impact while building foundations to capitalise on opportunities when recovery comes, advises British Retail Consortium chief executive Helen Dickinson

When 2022 began, we thought the worst was over. The Christmas Covid wave was paving the way to a spending boost as we unlocked from pandemic behaviour. 

But the war in Ukraine put inflation, already at a 30-year high, into overdrive. 

Energy prices rose, fertiliser and animal feed costs rose, transport costs rose – basically every cost line rose while the real incomes of customers fell. Demand faltered and the government went into a tailspin.

Fast-forward to December. Sales were a little better than many expected – the December BRC-KPMG Retail Sales Monitor showed a seemingly decent 6.9% growth.

Yet, with double-digit inflation, last week’s Office for National Statistics figures confirmed that December was the ninth consecutive month of volume declines. 

Smaller retailers were hit harder, but many also benefited more from government support on energy. Larger businesses were better positioned to absorb some of the cost increases but, as many had hedged energy contracts at least partially through last year, some of the support didn’t hit the sides.   

What next? Consumer confidence, according to GfK, languishes at a depressing -45, having hovered around the minus-forties since May. That is worse than the depths of the pandemic and shows little sign of meaningful improvement.

But, as the inflationary pressures begin to annualise, filtering out of the Consumer Prices Index, consumer confidence may begin to return. 

The year ahead

On New Year’s Day, as many of us were shaking off the celebrations of the night before, we put out our forecast for sales in the year ahead. 

Our analysis suggests that year-on-year sales growth – 3.1% in 2022 – is set to drop to between 1% and 2.3% in the first half of 2023. With inflation expected to remain high, this will still represent further falls in volumes.

Yet, having fallen out of the frying pan and into the fire, the second half of the year will at least have returned the industry to the pan, and beginning to slowly but confidently climb back up the handle.

Our analysis shows retail sales rising to between 3.6% and 4.7% from July to December, catching up with inflation as the latter falls throughout the year. 

Yes, the next few months are likely to be challenging for many, but perhaps we are reaching the eye of the storm. 

Surely managing the next year must be all about containing the impact of the downturn, but not letting go of building the longer-term foundations to capitalise on the opportunities when the recovery comes. 

That’s true for individual businesses and true for how we think about our work for the industry. 

Our ‘Today Agenda’ focuses on the issues of the here and now. In November, after months of lobbying from the BRC and others on business rates, the chancellor announced changes that we estimate are saving retail approximately £1.5bn per year. 

Long-term foundations

For us, there is plenty to go for this year as we face some big regulatory issues such as extended producer responsibility, changes to digital data and consumer regulations and labour shortages – all in a politically charged environment and in the lead-up to a general election by 2024 at the latest.

And in building the long-term foundations, our members continue working on our collaborative multi-year Change Programmes to help drive change across the industry faster than it would achieve on its own on issues such as climate action, talent and diversity and inclusion, and digital transformation. 

Great businesses are putting these issues at the heart of their operations. It is one thing to bring down costs for the year ahead, but meaningless if your competitors are shifting their business model to lower costs and improve productivity for the decades to come. 

Take sustainability. Ultimately retailers face a series of questions: how to be ethical but affordable; green but profitable. 

Maybe they are not either/or questions. From reducing packaging to cutting energy use, such actions not only help the country tackle climate change but help retailers reduce energy use and cut future costs.

That’s especially important as the cost-of-living crisis continues to bite, eating into consumer spending power and limiting the ability for them to handle further price rises.

Building for the long term while navigating the immediate challenges, the winners will be those meeting the needs of their customers. They will be the ones who understand that we all have a part to play in the cost-of-living crisis.