Let’s hope that a gloomy wage growth outlook from think-tank the Institute for Fiscal Studies (IFS) is wrong, because otherwise retailers potentially face years more of tough trading.
Following last week’s Budget, and based upon the Office for Budget Responsibility’s downgrade of productivity growth, the IFS issued the grim warning that, after accounting for inflation, average UK earnings in 2022 could be lower than in 2008 when the financial crisis struck.
IFS director Paul Johnson said: “We are in danger of losing not just one but getting on for two decades of earnings growth.
“We will all have to get used to the idea that steadily rising living standards may be a thing of the increasingly distant past.”
Think about that for a minute, particularly from the point of view of the young.
“Many people who entered the workforce in 2008 have little financially to show for their efforts, frequently locked out of the housing market and now confronting inflation”
Many people who entered the workforce in 2008 have little financially to show for their efforts, frequently locked out of the housing market and now confronting inflation.
If the analysis is right, many of those starting work this year also face years of uphill struggle as their budgets are stretched.
I’ve been struck lately by how many young people I know have signed up with challenger bank Monzo, which operates through smartphones.
One of the biggest attractions to them is how Monzo breaks down their expenditure and sets spending targets by category to ensure they don’t break their budgets. Since its launch in 2015, Monzo has won 400,000 customers.
While no doubt they will treat themselves as and when, they are reluctant to unnecessarily splash the cash – unsurprisingly. And when they do, will it go on the product traditionally carried by retailers or on a long weekend?
When shoppers’ finances are under pressure, so are retailers’ sales and profits.
Many of those people who entered the world of work in 2008 will, by 2022, be getting on for middle age and have families.
So a long period of scrimping by will affect a wide range of retailers, not just those that appeal in the main to youngsters.
Value, even more than in the past several years, is likely to be a fundamental arbiter of where people shop.
There are implications too for the retail workforce as it is reshaped to reflect omnichannel shopping habits.
Youngsters with the skills and talent in demand will, more than ever, be choosy about where they work. They will seek wages that enable them to get on in the world and companies with contemporary cultures.
Retailers that fail to adapt to potentially straitened consumer circumstances and fail to reflect the interests of the young will suffer if the hard years flagged by the IFS come to pass.
While retailers will hope for the best, they should prepare for the worst.
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