What’s in store? Trends in the retail sector

Zoe Wakeham and Daniel Wood, Consultants in our Consumer & Retail practice, explore six significant issues facing retailers.

As The Body Shop’s woes underline, UK retail is a challenging market in which even long-established players with a clearly defined brand positioning can be vulnerable. To survive, and ideally thrive, retailers must be competitive and alert to changing tastes and evolving shopper preferences.

Pricing, loyalty strategies, innovation and investment in talent are among the perennially key issues on which success hinges. Here are six trends shaping the retail sector in 2024:

The member prices bandwagon gathers pace

On 24 January 2024, supermarket chain Co-op discontinued its old reward scheme, under which shoppers accumulated points, in favour of a focus on exclusive deals and discounts for scheme members, having introduced member pricing last April. Also last April, Sainsbury’s launched Nectar Prices, offering Nectar-toting customers up to half price on over 2800 products.

They and other retailers have followed in the wake of Tesco, which led the way with Clubcard Prices in 2019. This move triggered a surge in both Clubcard user and transaction numbers.

There is clear evidence that consumers prefer the instant reward of lower prices over collecting points. Digital Loyalty Index research finds that three quarters of people are “positive” or “very positive” about member-only pricing.

As well as driving loyalty, member pricing generates enormous amounts of valuable data which can be fed into product promotion strategies and highly targeted marketing. Supermarkets adept at this give themselves an edge.

But supermarkets do not have a monopoly on member pricing. JD Sports, Ryman and Robert Dyas are among the high street names to have joined the fray. Others will follow as the loyalty battle intensifies.

More love for pre-loved

Where once we had ‘secondhand’, now there is ‘pre-loved’ and ‘re-commerce’. These new terms have come to the fore as this part of the market has been transformed amid efforts to commercialise the circular economy. Over the past couple of years, steps to do the right thing in terms of promoting re-use have dovetailed with growing consumer demand as many people try to save money during the cost of living crisis.

A report by Barclaycard Payments and economic analysts Development Economics found that the surging re-commerce market is worth £6.99 billion. Three-quarters (76%) of merchants surveyed offer some form of “more sustainable shopping format”.

Electronic goods and fashion sit at the forefront of this trend, although Ikea’s buyback and resell service, launched almost three years ago, deserves a mention as a pioneer in the furniture sector. Luxury accessories and apparel brand Coach last year established a sub-brand, Coachtopia, focused on circular craft and collaborative creativity, designed as a platform for change in which Gen Z can help create the fashion future they want to see.  

The pre-loved wave is set to continue, powered through a combination of consumer price sensitivity and social conscience. Many retailers are still figuring out whether and how to enter the re-commerce market, and if they do, what is the right balance for them to strike between used and new.

Technology that helps, technology that hinders

Technology presents a vast array of opportunities, from transforming standard store formats into exciting customer experiences, to boosting stock room efficiency, through to harnessing AI to improve customer intelligence and demand planning.

The Fragrance Shop’s new flagship store on Oxford Street boasts an AI-powered perfume personalisation station allowing shoppers to create their own personalised scent with Algorithmic Perfumery. Sport’s Direct’s large new store in Manchester’s Arndale Centre features digital touchpoints allowing shoppers to learn more about in-store ranges and fun interactive activations including a Jordan basketball performance challenge. But it’s vital to tread with care on some aspects of tech, as Sports Direct found when criticised over its use of a facial recognition system.

In today’s bold new era of AI and automation, retailers must decide where technology helps and where it hinders, and even alienates. Self-service tills have become commonplace, but in November Northern England supermarket chain Booths announced it would remove them from all but two of its 28 stores in the belief that staff serving customers make for a better experience. Booths managing director Nigel Murray explained: "We like to talk to people and we're really proud that we're moving largely to a place where our customers are served by people, by human beings, so rather than artificial intelligence, we're going for actual intelligence."  Food for thought.

Minimising miles in the supply chain

Advanced Supply Chain research finds that 35% of retailers aim to remove miles from their supplier chains to lower operating costs and to meet Scope 3 emissions requirements. For some, the priority may be near-shoring or reshoring – an issue that has risen higher up the agenda amid concerns around the disruption to shipping in the Red Sea.

Other retailers are placing greater emphasis on optimisation to boost the amount of goods shipped per load, thereby cutting transportation movements and, by extension, carbon emissions. Making supply chains more efficient, resilient and resistant to risk will once again be a major theme this year.

Challenges persist for DIY and home improvement

It’s well known that the DIY/home retail sector has found it tough going since the home improvement boom brought about by the pandemic came to an end in 2022. Topps Tiles recently reported its like-for-like sales for the final quarter of 2023 were down 7.1% year-on-year. It attributed these disappointing results to “ongoing challenges to discretionary consumer spending,” which it claims have impacted the repair, maintenance and improvement sector in particular.

According to consumer data from Barclays, 2023 saw spending on home improvements and DIY fall by 4.7%, with furniture stores experiencing a similar drop (-5.2%). The tough market seems set to continue for a while yet and retailers in this space will have to get their offers spot on to gain market share at a time when the pie is not growing.  

Interestingly, while there has been less spending on big ticket home items such as sofas, the Barclays data pointed to a 5.6% uplift in spend on health and beauty. This may perhaps be down to the ‘lipstick effect’, where consumers prioritise small indulgences, such as cosmetics and self-care products, over big-ticket spending during periods of economic uncertainty.

Weather and wallets drive seasonless fashion

Mild autumn weather hit clothing sales in October – hardly what fashion retailers needed. Uncertain weather is just one element playing into the rise of so-called ‘seasonless fashion’. Another is the cost of living crisis as consumers aim to make their household budgets go further. Buying fewer, more versatile clothes also has a sustainability dimension.

Taking these factors as an ensemble, it’s easy to see why retailers are giving greater consideration to seasonless ranges. Let’s see what spring brings.