At the latest meeting of the KPMG/RetailNext Retail Think Tank (RTT), members shared their predictions and insight for the year ahead in the RTT 2024 outlook.

The bad news

Beset by low to no growth in the economy, customers impacted by a cost of living crisis, a recruitment dilemma, high staff costs, political uncertainty and a trading landscape changed permanently by the pandemic, UK retail had a tough 2023.

On top of all this, the continued impact of longer-term trends around channel fragmentation, changed consumer behaviours and decaying trust in institutions created further pressures which will spill over into 2024.

The RTT members predict that 2024 will be another lacklustre year, one of stagnation with many retailers simply getting by, particularly in the first half. And, as consumers come out of a Christmas, even with some good news at the tail end, this will see shoppers retreat into very tight budgeting from January onwards. It is expected that the UK retail sector will likely continue to see significant downward pressures on demand, cost and margin for the foreseeable future with a potential low-point being reached in May 2024.

Charles Burton, Director at Oxford Economics, said: “We think three key themes will shape the outlook next year, with the economy treading water as it moves from dealing with one shock to another. While the inflation shock is receding, both fiscal and monetary policy will hold the economy back in 2024. The Government has little room for manoeuvre on tax cuts and with more borrowers being forced to refinance their mortgages at much higher rates, the impact of past monetary tightening will continue to build. There is light at the end of the tunnel, however, as real wages should continue to recover in 2024 and as interest rates start to fall in the latter part of the year.”

The good news

To quote Paul Martin, UK Head of Retail for KPMG: “Even if the economic outlook remains muted, one thing history teaches us is that following a downturn we often experience an upturn, and the question should be, are you doing everything now to prepare for this?”

So, there are grounds for optimism, particularly for those retailers that worked hard to confront all of their challenges, work that will in 2024 start to pay off, leading some to consider for the first time in three years the holy grail of growth.

Clues as to where that growth will come from in 2024 are everywhere, particularly in Grocery, and Health & Beauty. Other winners will be those able to meet the needs of consumers that increasingly shop across multiple channels, so single-channel or pure-play operators will find it more difficult to prosper and deliver a profitable return. Therefore, the future of retail is likely to focus on hybrid business models that seamlessly connect all channels and touchpoints.

New growth models, such as retail media – already strongly adopted by the likes of Tesco, Currys and Kingfisher - may already be paying off. And this will lead to other new ideas and further developments around: closed-loop (end to end) social commerce buying journeys; cross-border; hybrid marketplaces where retailers sell own brand and 3rd party goods; subscription retail; and platform business models adding 3rd party brands either directly owned or in partnerships, the likes of which have been so successfully demonstrated by NEXT and M&S, for example.

Retailers will be hoping for greater financial and political stability as a foundation for this growth, and with interest rates now potentially having hit their peak and a general election pending within the next 12 months, this is certainly achievable in 2024 for those that focused on innovation and efficiency in 2023.

What this means, observable in 2023, is an even stronger polarisation between winners and losers, between discounters and high-end retailers, between differentiators and ‘me-too’s, between essential and non-essential. The squeezed middle will face higher debt servicing costs, a loss of market share, possible acquisition by larger rivals or – ultimately – even extinction.

As retail consultant, Mauren Hinton, said: “Retail demand may be stabilising but costs are increasing, squeezing profits. Consumers, who are also dealing with higher costs, are remaining selective in their spending, so retailers will need to deliver compelling offers, backed by strong finances, to succeed in 2024.”

For consumers, Hinton continued: “Price inflation slowing down and higher earnings, coupled with a strong labour market, will help to offset some of the higher housing costs consumers are experiencing, mortgage rates and rental increases in particular.”

2024 highlights

The bad news

  • Economic policy remains a dead weight on the UK economy and on retail businesses
  • KPMG’s Economic forecast expects real GDP growth will slow to just 0.3% in 2024
  • Impact of costs on households will rise as more people refix their mortgages and move into higher tax brackets, weaking consumer spending power for retailers
  • Debt interest payments will climb to 5.7% of household income in 2024, more than double the 2022 level, squeezing consumer spending further
  • The support from universal energy subsidies has been withdrawn, so real income growth will be subdued next year
  • The National Minimum Wage rises again in April - while this will be welcome for consumers’ disposable incomes and may impact demand, it also represents a significant cost to retail businesses
  • Some retailers are still holding large inventories, which will force discounting and lower margin
  • Inflation pressures remain on households and businesses
  • The disposable income divide between the industrialised North and the services-based South may widen
  • Convenience falls prey to cost-cutting, which may affect home food delivery
  • Business Rates rise by 6.7% in April 2024, offsetting the benefits of more favourable rent deals
  • Pressure on subscription-based businesses is expected as consumers review their spending in light of squeezed discretionary spending budgets

The good news

  • A H2 general election may deliver financial and political stability that could boost business and consumer confidence 
  • 2023 winners in retail will consolidate their gains and move into sustaining growth
  • Generative AI (Gen AI) will move from hype to happening and deliver measurable benefits
  • Retail Media Networks offer retail businesses additional revenue streams, monetising 1st party customer data and opening ad services and opportunities to 3rd party brands and advertisers
  • A consumer that has developed smart shopping habits since the pandemic will find ways to thrive
  • M&A activity will grow on the back of lower valuations for struggling online and mid-market brands, with some possible consolidation in the online pureplay and luxury space 
  • The Health & Beauty sector will continue to thrive and a £7bn IPO for Boots may be feasible 
  • The circular economy will grow, albeit from a low base
  • Retailers’ sustainability investments will start to pay off
  • Competitive freight rates are expected to continue
  • New physical concepts, especially in retail parks, are set to thrive, to include more hospitality

Retail sector performance – winners and losers for 2024

2022 was a very difficult year for the big quoted retailers, with both Food Retail and General Retail sectors amongst the worst performing verticals in the whole stock market, but 2023 has seen quite a turnaround. The overall UK stock market has again been broadly flat in 2023, but Food Retail and General Retail sectors have been two of the best performing verticals this year, delivering strong top quartile performance.

Category performance

The performance of the big DIY and “big ticket” retailers has been hurt by the big rise in interest rates. Trading conditions have continued to be difficult for the online “pureplay” retailers, not least because their operating and marketing costs have risen.

Grocery and Health & Beauty performed strongly in 2023 and will continue to do so in 2024 with “bigger ticket” categories, such as Furniture and Electricals, performing poorly. Many others, like Apparel, will stagnate, particularly mid-market Luxury. General Merchandise, Discount and Purpose-led Retail will also see growth, while there will be a contraction in Home, DIY and Electricals.

Mike Watkins, Head of Retailer and Business Insight UK at NIQ, said: “After two years of falling volumes in food retailing, we anticipate a return to volume growth in 2024. Across the £200billion food universe measured by NIQ, we are anticipating headline value growth in the region of +4% to +5% and volumes up around +0.5% to +1%. This assumes food inflation stabilising at around 5%, which clearly has some downside risk.”

Retailer performance

Nick Bubb, Retailing Consultant at Bubb Retail Consultancy, analysed the share price performance of some of the key players in 2023 in search of clues as to what retailers can do to succeed in 2024 given the number of new pressures emerging.

Tesco and Sainsbury’s both saw their share prices rise by around 30% in 2023, a reflection of how well they managed the surge in grocery price inflation and the increasing success of their focus on loyalty card promotions.

However, as Bubb noted: “sales growth for the big supermarkets in 2024 is likely to be more subdued, with the boost from grocery price inflation dropping away.”

“As for the outlook for the General Retail sector, much will depend on when the Bank of England feels able to start to lower interest rates, to relieve the pressure on “big ticket” spending – although this is unlikely to be before the second half of the year. The political timetable will also start to exert an even stronger influence on the economic outlook, as the debate intensifies about the best timing of the next election for the Government, with some expecting an election in May after another “tax cutting” Budget in March and others expecting no move until November, once interest rates start to come down.”

“The two biggest sector constituents, Next and JD Sports, performed very well, however, in 2023 delivering c40% and c30% share price growth respectively. It has also been a good year for the discount chain B&M, but the best performer has been Marks & Spencer, which has seen its shares more than double this year, thanks to strong sales and margin growth in both Food and Clothing. The recovery of the General Retail sector augurs well for the expected IPO of Boots in 2024.”

These and other larger retailers will, however, have to deal with the changes in business rates announced in the Autumn Budget statement. As Jonathan De Mello, Founder & CEO, JDM Retail, added: “The changes to Business Rates set out in the recent Autumn Statement will help smaller businesses, but will do little to lessen the burden on multiple retailers, who represent the vast majority of retailers in the UK. Whilst the small business multiplier will be frozen and retailers will be provided with 75% rates relief up to a cap of £110,000 per business, this doesn’t really help retailers with more than a handful of sites.”

Despite this, the picture is mixed for smaller retailers, as James Sawley, Head of Retail & Leisure at HSBC UK, explained: “The market has experienced an increase in administrations, signifying that the going is tough for small family run businesses, SMEs and independent retailers as, when compared to previous years, there have been fewer big name failures in 2023.” Throughout the whole of 2024, the cost of servicing loans will remain high.

Property performance

With the media focus generally on the High Street and ideas for its recovery, the growth of Retail Parks has often been sidelined, perhaps mistakenly. This property category outperformed in 2023 and is set to do so again in 2024 at the expense of the High Street.

As De Mello added: “For the likes of Next and M&S, which have been trading on Retail Parks for some time, their stores are among their best performing. With a broadening of the offer away from just bulky goods, and more Food & Beverage operators seeking to trade on Retail Parks, they are increasingly providing a real alternative to High Streets.”

Supporters of the High Street are not expected to be able to come up with a solution, but there will be growth through conversion to more Hospitality and Leisure outlets, particularly in empty department stores.

Consumer spending and demographics

The UK, along with other mature Western economies, such as Italy, Germany and France, is suffering from falling birth rates and ageing populations. By 2030, the UK population of 16 years and under will have reduced by 1.1million over the decade, while those aged 65+ will have increased by 2.5million (and these UK projections are based on net migration of 200,000 per year).

As Hinton explained: “This means old age dependency (the number of 65 years and above versus those of working age) is increasing every year. Moreover, with an ageing population the need for healthcare increases. As retail and healthcare are the two largest employers in the UK, reductions in immigration and rising healthcare needs will make the competition for retail workers even more challenging, despite the progress of technology.”

The Office for Budget Responsibility (OBR) has said that consumers have been net beneficiaries of monetary tightening in 2023, as interest received on consumers savings has been greater than increased mortgage payments.

If true, it is a reminder that that only around 5% of households re-fixed their mortgages in 2023 while millions of families with savings have finally been receiving some return on their cash. However, next year another 1.5m (5%) households will have to make material changes to their lifestyle in order to pay higher mortgage rates, which together with rising rental costs, will no doubt be felt across the whole retail sector. This will put the onus on retailers to double-down on knowing their customers and using 1st party data and insights to personalise engagement, offer targeted pricing and dynamic promotions based on their unique preferences.

As James Sawley, Head of Retail & Leisure, HSBC UK, explained: “Older and more affluent people are most likely to have material savings and low or no mortgages, so we will see a polarisation of performance of those retailers serving this consumer base. Overall, with the continued tight labour market, strong wage growth, another rise in Minimum Wage and falling inflation, I predict that consumer demand will surprise on the upside - but it will be certain demographics that will be driving this.”

Dominated as usual by food, the predictions for spend contain some interesting shifts. Retail Week’s ‘How They’ll Spend It 2024’ report talked to 1,000 consumers in October 2023 to find out. It found 86% were worried about the rise in living costs, while 46% said they were reconsidering their spending and 43% were focused on saving money.

Food and grocery, 80.2%

General merchandise, 23.7%

Entertainment and eating out, 21.4%

Fashion, 15.2%

Health and beauty, 11.5%

Toys and gifting, 10.1%

Electricals and gadgets, 4.6%

Sports and leisure, 8.9%

Big ticket items, 9.5%

The context around these figures, as Hinton explained: “The trend of lower volumes and the switch to own brands will continue in 2024 as consumers prioritise their needs and are more selective about where they shop and what they buy.”

Technology prospects

As indicated, those retailers that made the right investments in technology in 2023 will start to see the benefits in 2024. This is about innovation rather than fighting fires with existing systems.

Miya Knights, Retail Technology Magazine Publisher and Consultant, added: “Technology investments will continue to help separate retail’s winners from losers through 2024, just as it has increasingly done for over 25 years now, and at an accelerated pace ever since the Covid-19 pandemic. However, where it may have previously been enough to adopt and deploy technologies that allowed operators to catch up to their competitors, those who genuinely innovate using IT and digital will succeed next year. The real battleground for tech innovation will be in the supply chain. Too many retailers and brands must still improve forecasting accuracy to combat poor availability, overstocks and markdowns.”

Gartner’s CIO and Technology Executive Survey

Gartner’s results suggest 2024 is likely to be another breakthrough year for AI.

Business intelligence and data analytics top the list of technologies respondents are increasing their investments (87%).

This was followed by investment in cloud platforms (80%) and application modernisation (79%).

However, at the same time 9% plan to reduce next-generation compute technology investment and 12% are pulling back on enterprise resource planning systems 12%.

Gen AI in 2024

According to Natalie Berg, Retail Analyst and Founder of NBK Retail: “Our ecommerce experiences are going to move away from their static, one-dimensional state and will become much more immersive, predictive and tailored to meet our individual needs. Retailers have aspired for hyper-personalisation for years; Generative AI (Gen AI) will finally make this a reality.”

Gary Whittemore, Head of Sales EMEA & APAC at RetailNext, added: “Retailers are opening and closing stores, as they always have. But what is different now and looking forward into 2024 is they will be able to make the right choices based on a better understanding of how their customers shop – what devices, channels and apps they use to make a purchase.”

AI will also be used on the return journey to consumers to enable greater personalisation based on insight. As Watkins added: “All promotions should be personal and be supported with marketing messages that do more than just raise awareness of products.”

Other scenarios in development include AI-powered shopping assistants, which Mastercard is already said to be trialling. On the operational side, retailers have been exploring AI for smart forecasting on replenishment, pricing and promotions, as well as automatic alerts for markdowns to reduce waste. In the supply chain, the objective is to leverage AI to manage exceptions more dynamically.


The RTT members all agreed, in a stagnant market, retailers need to go looking for growth and be ready for the recovery.

Surviving the economic, geopolitical and technological disruption of recent years has instilled a strong sense of resilience within the sector. Retailers have not only acclimated to volatility and uncertainty, but many have actually benefited from newfound operational agility born out of these circumstances.

Natalie Berg
Retail Analyst and Founder, NBK Retail

With monetary and fiscal policy remaining a dead weight on the UK economy, the key challenges impacting retailers into 2024 are expected to be:

  • Rising cost pressures, including National Living Wage and Business Rate rises
  • Weakened consumer demand due to:
    • Continued squeeze on households through higher interest rate mortgage refixing for homeowners
    • Rising rent costs
    • Wage growth slowing and its benefit to consumers offset as more move into higher tax brackets
    • High household debt servicing costs

But, despite these challenges, there remains several growth opportunities in 2024:

  • Exploring growth models, such as Retail Media Networks
  • Adopting platform business models following the success of Next and M&S
  • Reassessment of asset classes, such as Retail Park settings
  • Investment in tech, including Gen AI
  • Innovation across commercial functions and the supply chain
  • Tapping into new growth cohorts of consumers and moving away from a Gen Z focus to acquire and retain older, more affluent consumers
  • Category winners seeing Food, Health & Beauty and Purpose-driven retail outperforming other verticals.

What lies ahead for Consumer Goods companies?

Linda Ellett, Head of Consumer, Leisure & Retail, unpacks the RTT whitepaper’s insights revealing the impact on Consumer Goods companies and explores what trends they could focus on to thrive.