Luxury goods sales downturn will continue in 2024, says think tank

Big-ticket purchases will continue to see sales decline into next year, according to the latest report from the Retail Think Tank.

The report from the KPMG/Retail Next Retail Think Tank (RTT) predicts that weakening consumer demand is likely to continue into 2024 expects a difficult Q1 to be just the “lull before the storm of Q2 2024 when a tsunami of costs will hit the sector”.

The Retail Think Tank adds that while resilient consumers continue to prop up retail health, helped by reduced NI contributions and wage growth outstripping inflation, consumer willingness to spend could be coming to an end.

This follows what early indications suggest will be a disappointing Christmas period for retail, especially in the non-food sector.

The report said that its Retail Health Index the index had seen deterioration in retail health every quarter since spring 2022. It predicted that it would plummet to 66 points in Q1 of 2024 (set against a base of 100 in April 2006) – the worst since the height of the pandemic in 2020.

The report believes that retail growth in 2024 will come from the discount and value retail channels.

It further predicted that the downturn would continue beyond that as Q2 of 2024 will see the retail sector hit by a rise in the National Minimum and a 6.7% business rates increase for most retailers, although there will of course be relief available for properties with a rateable value below £15,000.

The think tank predicted that luxury goods and big-ticket items would continue to experience a downturn in sales. It said that demand is likely to pick up in spring 2024 as consumer confidence builds, but that raising coasts will hit retailers, particularly those with less than stable finances, although it added that pure-play online retail was likely to be harder hit.

Commenting on the findings, KPMG UK head of retail Paul Martin said: “Indicators so far are that Christmas trading this year has been one of the worst since the pandemic hit, and although there is still all to play for in the final weeks of December, it is looking as if it’s too late turn fortunes around. While food retailing sales growth has been weaker than seen over Christmas last year, sales of non-essential goods have been deteriorating rapidly and will continue to do so as consumers keep an even tighter grip on the household purse strings.”

Suggesting that the challenges are set to continue, he added: “It has taken a long time for the economic challenges to feed through to consumer resilience, but it looks as if it’s happening now, and is set to stay with us, at least until spring.  The UK retail sector will likely continue to see significant downward pressures on demand, and margin, for the early part of 2024 but this could turn a corner by April, just as hefty increases in minimum wage and business rates hit the bottom line.  Retailers will be holding their breath for some good news in the Chancellor’s Budget in March.”

Predicting that the retail sector will be treading water for some time to come, he concluded: “Retailers have been remarkably resilient over the last few years and are now well versed in being agile to cope with economic shocks and changing consumer demands. Pressures on consumers from high inflation may be easing, but the economy faces headwinds from the lagged impact of monetary policy tightening and rigid fiscal policy settings.  For the next few months, we expect the retail sector to continue to tread water as it moves from dealing with one shock to another.”

Striking a more positive note,Natalie Berg, retail analyst and founder of NBK Retail, said: “As we look ahead to 2024, it’s worth calling out that whatever is thrown at retailers, they will be far better equipped to handle it than they might have been just a few short years ago. I wouldn’t suggest that 2024 will be uneventful, but I think retailers can certainly welcome more stability. “The worst of the cost-of-living crisis is behind us, and although consumers have been surprisingly resilient thus far, we’re certainly not out of the woods just yet. Consumers will continue to exercise caution and restraint, leaving retailers to contend with somewhat muted demand, heightened expectations and cost pressures of their own – from business rates to hefty increases in minimum wage requirements from April 2024.”

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