Welcome back to our Cost Of Living Christmas 2023, today we will look at the retail and hospitality sectors. These are the two sectors most associated with Christmas in economic terms. The holiday forms the most important period in the sectors’ calendar and a good Yuletide period can be the difference between a successful or disappointing year; given the challenges facing these sectors over the last three years, for many companies the difference will be between survival and insolvency.
Retail and hospitality were two of the sectors most affected by COVID. With lockdowns confining people to their homes, traditional brick and mortar shops, restaurants and bars being largely unable to trade whilst many online merchants and takeaways saw somewhat of a boom. Unfortunately, those companies that benefited from COVID are far outweighed by those that suffered, and many of these have struggled since lockdowns ended.
Both sectors approach the end of 2023 with a backdrop of rising insolvencies, low growth and increasing worry amongst directors.
Both sectors faced the same macroeconomic challenges that have dominated the economy in recent years. Business has faced many of the same difficulties as the public but has also been exposed to additional difficulties.
- Inflation, price rises and decreased consumer spending power – Above average inflation and price rises for materials even adjusted for inflation has increased the cost of doing business. Whilst a decrease in consumer/business spending power, covered in our previous article, has meant that companies are seeing reduced demand for goods and services at the increased prices they are having to charge.
- Low business energy relief – In March 2023 the government ended the Energy Bills Relief Scheme and introduced the Energy Bills Discount Scheme. This was significantly less generous and in effect left many SME’s with little to no support.
- COVID loan repayments – Businesses are struggling to repay COVID loans taken out during lockdown.
- Supply disruption – Global supply chains are still far from recovered from the effects of COVID and many businesses have struggled to source the supplies they need and have faced business and revenue, disruptions as a result.
Retail at Christmas
The UK retail industry has not thrived in 2023 and the 12 months to Q3 2023 saw a 52% year on year rise in insolvencies. Some of which were very public, such as Planet Organic and the beloved high street staple Wilko. The long hangover from COVID has seen many retail companies with almost no reserves left and a successful Christmas is vital.
Unfortunately, this is far from what is predicted. The pervading opinion of industry experts and economic researchers is that the UK public will overwhelmingly reduce their overall spend this Christmas. The public is more savvy than ever and shoppers are looking for bargains this Christmas, with shoppers spending less on individual items compared to previous years. Whilst this may initially seem to favour online retailers, traditionally seen to have their lower overheads reflected in cheaper prices, rapidly rising delivery costs are negating this and shoppers are actually expected to favour brick and mortar stores this year.
Black Friday is hoped to have helped boost the retail sector’s revenues but it is not just a reduction in gift buying that is threatening the industries coffers. Consumers are cutting down on all aspects of Christmas, with many households reducing on their grocery spend, even avoiding hosting duties to do so, avoiding travelling to visit relatives and cutting back on decorations 15% of people surveyed by TopCasback, the country's leading cashback site, said they were not putting up lights and spending on decorations up to the end of October 2023 has fallen by 19%.
Hospitality at Christmas
Ever a challenging sector to operate in, hospitality has seen high numbers of insolvencies and business failures are at the highest rates in a decade within the industry. As high energy use businesses and one of the discretionary spends to be cut back on by households, the industry has been especially vulnerable to high energy costs and tighter budgets.
Pubs and bars received an unexpected boost coming into the holiday season due to England’s performance in the Rugby World Cup but there has been little to cheer about for restaurants recently.
Unfortunately, dining and entertainment are one of the first and easiest cuts to make from a household budget which leaves hospitality as a sector very sensitive to rises in cost of living and reduction in consumer spending power. This is evidenced in KPMG’s recent research that found one third of people are planning to cut back on or eliminate eating and drinking out this Christmas.
All in all, it is shaping up to be a disappointing Christmas for these two industries and 2024 is expected to be more of a lump of coal but join us for our next article in this series when we will look at which of the other industries have been naughty or nice this year.
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