The ongoing burden of eye-watering inflation and the cost-of-living crisis has led to a sharp decline in disposable income, unavoidably diminishing typical festive spending and threatening the long-term stability of the UK’s retail sector. Although it may initially appear that December sales grew by a respectable 3.8% according to figures from the Office of National Statistics, inflation is to blame for this false optimism. Higher prices may have superficially boosted revenues, masking the crucial issue that once they are adjusted for inflation, sales volumes have fallen by 5.8%. Furthermore, consumers’ presence on local high streets for Christmas shopping was also lacking; December retail footfall was up a paltry 7.2% compared to 2021 despite a lack of pandemic restrictions and the Omicron variant which was so widespread during the previous year.

This disappointing festive period follows a year of cost-of-living and inflation-induced devastation for the retail sector, with a staggering 150 jobs lost and as many as 50 stores shutting their doors every day.

Such events naturally inspire fear and trepidation in retailers about the future of their businesses. It is therefore imperative that they carefully examine what factors, be they social or fiscal, may influence their ability to generate sales over the course of 2023 and find creative methods of maximising their profits to conquer these external difficulties.

Turbulence ahead for 2023

At present, the outlook is not much more optimistic for 2023. While January is perennially notorious for people tightening their purse strings after splashing the cash, 2023 as a whole appears set to suffer a year of moribund spending as the cost-of-living crisis rages on. The British Retail Consortium predicts retail sales to rise by a meagre 2.3% in the first six months against double-digit inflationary figures and extortionate overheads as energy prices continue to rise.

Widespread industrial action is set to be a defining factor of the upcoming year, the significance of which for retail must not be underestimated. Certainly, ongoing transport strikes will lower footfall as consumers face difficulty making the journey to shop in-store and retail workers struggle with their daily commute – but the impact does not end there.

Putting transport aside, strike action is going ahead in 2023 across an enormous range of sectors, from nurses and postal workers to teachers and civil servants. More than anything, these strikes involving hundreds of thousands of workers are a clear indication of the lowest national mood in a generation. One must only look at the front page of any newspaper to see that Britain has entered a second winter of discontent. With so many struggling to afford even the bare necessities, Britons have entered survival mode; splashing the cash is far from a priority and, as such, retailers are experiencing the consequences of depressed customer buying power.

How can retailers fight back?

Despite a gloomy forecast for 2023, retailers need not despair just yet; there are possible solutions to weather the storm and even thrive. Critically, retailers must be laser-focused on the external factors impacting customer spending.

As overheads and raw material costs rise, retailers may be tempted to push shooting costs onto consumers. Although it is inevitable that prices will need to rise somewhat, retailers should be wary of biting the hand that feeds them and pricing themselves out of their target market demographic. Instead, it is essential to recognise customer spending limitations during this period of economic difficulty and offer support through fair pricing and consumer offers relevant to the underlying environment.

Furthermore, now is not the time for retailers to take unnecessary risks through uninformed product development, particularly for SMEs who are so vulnerable to market volatility. For now, while footfall is low and consumer spending power is weakened, retail businesses would be wise to stick within their areas of expertise and create products that they are confident will sell effectively.

But how can retailers ensure that their products fully align with their target market’s needs and budget? Ultimately, customer insights – data – will be the most valuable tool in the box. Such insights can reveal in a great level of detail which types of products consumers are turning to, the price point they are drawn to, and a host of other priceless nuggets of wisdom to help drive sales throughout a challenging economic climate.

Such data can be extracted from an array of plentiful sources. One popular option is direct-to-consumer marketing platforms which enable retailers to identify customer movements at the product level, providing insight into wider market movements across competitors’ most successful products. To survive what is set to be the worst of the cost-of-living crisis, retailers must streamline their operations and home in on what their consumers need and can afford by making use of in-depth customer insights.