Health of the retail sector expected to be strongest for two years as festive shoppers look to enjoy Christmas

Uncertain outlook for 2022 if consumer confidence falls and Covid restrictions increase, as costs continue to climb for the retail sector.

Uncertain outlook for 2022 if consumer confidence falls and Covid restrictions increase.

  • Retail health in Q4 could finish as the highest since Q3 2019
  • Growth slows from strong Q3 to Q4 suggesting a downwards trajectory for 2022
  • Uncertain outlook for 2022 if consumer confidence falls and Covid restrictions increase, as costs continue to climb for the retail sector

The final three months of 2021 could see the health of the retail sector end the year in the strongest shape it has been since before the pandemic, according to the latest retail health assessment by KPMG/Ipsos Retail Think Tank (RTT) members.

Whilst there are still two weeks of the quarter to go and concerns around the Omicron variant are rising fast, the RTT believe consumers will continue to spend their way to Christmas, ending the year in strong health for what could be a challenging new year.

The buoyant golden quarter so far has been driven by consumers shopping earlier to grab festive gifts, determined to enjoy Christmas this year. Continued strong consumer demand has offset rising costs and driven strong margins, to see the Retail Health Index (RHI) grow by 1 point in Q4 21 to 75 points, a score last recorded in Q3 19 – months before the pandemic hit.

Substantial rising costs across every element of retail from wages to logistics and energy have been offset by strong consumer demand in the run up to Christmas, with many retailers as a result, experiencing gross margin improvements and some even upgrading profit forecasts.

Whilst non-food categories saw a shift away from the household goods buying towards fashion, which has seen strong growth so far in the final quarter of this year, food demand has eased. However, it is expected to grow in the final weeks of this month, particularly demand for premium labels as consumers shop for top quality items for family feasts over the festive period.

The RHI found that growth in Q4 21 had slowed slightly on the back of a strong Q3 21 – indicating a downward trajectory as we head in to 2022.

Commenting on the RHI for Q4 21 Paul Martin, Head of Retail at KPMG in the UK said:

“The retail reset caused by the pandemic has seen retailers learn a lot over the last two years. Many of the weaker players in the market have now gone, and the benign gross margin environment has led to lots more promotional discipline across the rest of the sector.  As a result, despite the rising cost agenda, the industry is much healthier than it was two years ago.

“The health of the UK retail sector continues to grow, driven by strong consumer demand as households are determined to enjoy Christmas celebrations this year despite concern over rising infection numbers.  Many households are sitting on savings accrued during various lockdowns, and happy to spend now that restrictions have been lifted.  However, should consumer confidence start to wane, those unavoidable rising costs which are a sticking point for retailers, could see the health of the industry deteriorate quickly, across successive quarters in 2022.”

Macro conditions could see retail health decline in Q1 22

The RTT predicts that retail health will remain flat in the opening quarter of 2022 – if consumer confidence levels and demand continue as they have this year.   The high consumer demand which has cushioned retailers in previous quarters is all dependent on households continuing to feel confident in their spending power. Moves towards further restrictions in January could derail retail recovery, particularly the sales revival in the fashion sector.

Whilst consumers continue to accumulate savings, with a total of ‘excess savings’ now estimated at around £163 billion since the start of the pandemic, the end of the universal credit uplift, rising inflation, potential interest rate hikes and rising utility prices could all impact consumers’ willingness to go out and spend.  Rising wage growth could keep inflation higher for longer and this coupled with continued increasing costs for retailers, could see the health of the industry deteriorate in the opening months of 2022.   Retailers who have so far not passed rising costs on to consumers may have to absorb these for longer, resulting in margins also being squeezed in Q1 22.

KPMG’s latest UK economic outlook forecasts the reintroduction of social distancing restrictions in retail and hospitality venues (with no closure of retail or lockdowns triggered and schools remaining open) could see the economy contract by around 2% in the first quarter of 2022 before growing by a similar rate in the second quarter if most restrictions are lifted.

According to the RTT, Q1 22 is a big inflection point for the RHI going forward depending on consumer confidence in the new year.   The last time the RHI fell due to the impact of inflation on consumer confidence, was over a decade ago in Q1 11 where it then continued to fall for eight successive quarters and dropped quite quickly.

Commenting, Paul Martin said :

“Continued consumer demand is absolutely vital as we head into the new year to offset the rising costs that retailers are likely to experience for a while and to keep the industry in good health.

“Retailers have worked hard to manage those factors that have been in their control over the last two years and adapt to the changing environment, but there are many macro factors outside of their control that could hit the sector hard next year.

“Given the ongoing Covid situation, it is highly likely that the demand that has cushioned retailers over the last few quarters will reduce and the broader macro situation could also play against the retail health index in Q1 22.  It wouldn’t take much for Q2 and Q3 to also deteriorate if consumers choose to sit on savings to weather the storm.”




Note to Editors:

For media enquiries, please contact: 

Emma Murray, KPMG Corporate Communications

T: 020 7 694 6506


KPMG Press Office: +44 (0)207 694 8773

About the KPMG/Ipsos Retail Think Tank (RTT) and Retail Health Index:

The RTT panellists rely on their depth of personal experience and sector knowledge, and review a comprehensive bank of industry and government datasets and include the following:

Members of the RTT are:

  • Nick Bubb – Independent Retail Analyst
  • Andrew Firth, Ipsos Channel Performance
  • Jonathan De Mello – CWM Retail Consulting LLP
  • Martin Hayward – Hayward Strategy and Futures
  • Maureen Hinton – GlobalData Retail
  • Paul Martin – KPMG
  • Martin Newman –The Customer First Group
  • James Sawley – HSBC
  • Mike Watkins – NielsenIQ
  • Ruth Gregory – Capital Economics

The intellectual property within the RTT is jointly owned by KPMG ( and Ipsos Retail Performance.

First mentions of the Retail Think Tank should be as follows: the KPMG/Ipsos Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.

The RTT was founded by KPMG and Ipsos Channel Performance in February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited.  The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector.  The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.

Definitions:  The RTT assesses the state of health of the UK retail sector by considering the factors which influence its three key drivers.

  1. Demand– Demand for retail goods and services.  From a retro-perspective, retail sales, volumes and prices are the primary indicators.  When considering future prospects, economic factors such as interest rates, employment levels and house prices as well as others such as consumer confidence, footfall and preferences are used.
  2. Margin (Gross) – Sales less cost of sales; the buying margin less markdowns and shrinkage.  Cost of sales include product purchase costs, associated costs of indirect taxes and duty and discounts.
  3. Costs– All other costs associated with the retail operations, including freight and logistics, marketing, property and people.

The Retail Health Index – how is it assessed?

Every quarter each member of the RTT makes quantitative assessments of the impact on retail health of demand, margins and costs for the quarter just completed and a forecast of the quarter ahead. These scores are submitted individually, collated and aggregated in time for the RTT’s quarterly meeting. The individual judgments on what to score are ultimately a combination of objective and subjective ones, drawing upon a wide range of hard datasets and softer qualitative material available to each member. The framework follows the example of The Bank of England Agents’ scoring system on economic intelligence provided to the Monetary Policy Committee.

The aggregate scores are combined to form the Retail Health Index (‘RHI’) which is reviewed at that meeting and occasionally revised after debate if members feel it appropriate.  The RHI tracks quarter on quarter changes in the health of the UK retail sector and as such provides a useful and unique measured indicator of retail health.  The index ‘base’ of 100 was set on 1 April 2006.  Each quarter, it assesses whether the state of health has improved or deteriorated since the previous quarter.  An improvement will lead to a higher RHI score than that recorded in the previous quarter, and with a deterioration leading to a lower score. The larger the index movement, the more marked the shift in the state of health.

The RHI has two main benefits. Firstly, it aims to quantify the knowledge of the RTT members in a systematic way. Secondly, it assesses the overall state of health of the UK retail sector for which there is no official data.

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