2022 Sector Outlook

Stronger and leaner retailers set to capitalise on opportunities in 2022

View our 2023 sector outlook for retail and wholesale

From the bleak days of the lockdown in 2021 Q1, which looked like setting a dark precedent for the 12 months ahead, it was beginning to look like a year of two halves but then things suddenly changed with the Omicron variant in December.

Although footfall in stores in recent weeks is up on the 2020 levels it is still below that of 2019 but there is a much greater intent to actually buy from those people hitting the shops and the average basket size is higher. Retail volumes in November were 4.7% higher than the same month in 2020, with clothing stores sales volumes in November 2021 above pre-coronavirus levels for the first time; 3.2% above their level in February 2020.

What pushes the total spend figure higher is the level of online sales, which have moved up from 19.2% of total retail sales in February 2020 to an average of 28% in 2021. This is reflected in the retail spending on consumer cards, which grew 20.5% in November compared with the same period in 2019, according to data from Barclaycard.

There has certainly been incredible resilience shown by retailers, along with a dash of creativity, during a period of rapidly changing customer behaviours that have included the embracing of digital by all demographics. For instance, Barclaycard found strong growth for card payments of digital content and subscriptions – up 44.4%, and food & drink specialist retailers up 66.4%.

We’d suggest the industry is set up well to face supply chain and Covid challenges with resilient and more flexible business models combined with good liquidity. There are also many opportunities for those retailers able to continuously adapt to the changing way customers are behaving – especially the hybrid working patterns that are having a marked impact on shopping activity.

There is also the desire by greater numbers of people to shop with an ESG agenda whereby they choose retailers operating with ethical and sustainable supply chains. This could be seen in the Barclaycard Consumer Survey data, with 41% of consumers planning to make changes in 2022 because they have become more conscious of their personal impact on the environment.

I’d temper this scenario with the fact that many individuals like to say they will shop this way whereas in reality this is not yet the case. It is still, however, an opportunity for large businesses to accelerate their ESG journey and look to be a force for change across the industry.

By communicating their credibility in this area they will be ready for the next generation to come through. I believe they are more passionate about spending with retailers who have genuine ESG credentials and for who it is part of their culture rather than a ‘box to tick’. And they will be a force very soon, with Bain & Company forecasting Gen-Z shoppers will account for 40% of spending on global luxury goods by 2035.

To satisfy consumers it is essential retailers deliver a seamless end-to-end journey across channels. They need to translate what shoppers see online with the experience they have in-store. This might include the adoption of augmented reality technology but more fundamentally retailers need to ensure a quality range and a high level of service otherwise people will resort to solely going online. This would be wasted opportunity because, despite the nervousness as a result of Covid, there is a strong desire for people to go out to stores.

Handling the safety of customers is certainly a key priority for retailers and represents one of the challenges they face in 2022 amid a continued uncertain outlook. During this time, they will also have to maintain, and drive, fragile consumer confidence while dealing with the pressures on staffing and the supply chain and the potential inflationary impact.

There will likely be a trend for more near-shoring with the sourcing of more goods from the EU as retailers shift demand away from China and the Far East. This will also help with their sustainability and ethical requirements (by being able to more easily check on supplier working practices) and also shorten lead times.

We will undoubtedly see a move from the just-in-time supply chain scenario to which retailers have become accustomed, which will require the introduction of more accurate forecasting and an acute focus on pricing. The latter is definitely posing a challenge, against a backdrop of rising inflation, which could top 5% in 2022.

There is clearly no hiding from the fact there are challenges but those retailers who have come through Covid-19 will arguably be stronger, have leaner business models, and have embraced the rise of digital. The forthcoming year undoubtedly represents an opportunity for them to capitalise on the incredible experience gained over the past two years and the investments they have made in their businesses.

Karen Johnson, National Head of Retail and Wholesale, Barclays Corporate Banking

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