Experts at the latest KPMG/RetailNext Retail Think Tank (RTT) meeting have painted a challenging picture for the UK retail sector in 2024, stating that UK retail faces a tough year with low growth, a cost-of-living crisis, recruitment challenges and pandemic-induced changes.

The RTT predicts another lacklustre year in 2024 with significant downward pressures on demand, cost and margin, possibly hitting a low point in May.

Three key themes shape this year's outlook

Charles Burton, director at Oxford Economics, shared insights by stating: "We think three key themes will shape the outlook next year." He outlined the challenges the economy faces, moving from one shock to another.

While the inflation shock is receding, both fiscal and monetary policies will impede growth in 2024.

Burton sounded a hopeful note, saying: "There is light at the end of the tunnel." He cited the expectation of real wage recovery and falling interest rates in the latter part of the year.

Hard work could pay off in 2024

Paul Martin, UK Head of Retail for KPMG, emphasised historical patterns, saying: "Even if the economic outlook remains muted, one thing history teaches us is that following a downturn we often experience an upturn."

He urged retailers to prepare for this upturn, noting that 2024 could be the year when hard work starts paying off, leading to a potential growth spurt after three challenging years.

Winner and losers

The retail sector experienced a turnaround in 2023, with the food retail and general retail sectors among the best performers, according to Nick Bubb, retailing consultant at Bubb Retail Consultancy.

He noted the share price growth of key players like Tesco and Sainsbury's, adding: "The recovery of the general retail sector augurs well for the expected IPO [initial public offering] of Boots in 2024."

James Sawley, head of retail and leisure at HSBC UK, commented on consumer demographics, stating: "Older and more affluent people are most likely to have material savings," and predicting a performance polarisation among retailers serving this demographic.

Despite challenges, he predicted that consumer demand will surprise on the upside, with certain demographics driving this positive trend.

Generative AI will make this a reality

Natalie Berg, retail analyst and founder of NBK Retail, highlighted the role of generative AI (gen AI), saying: "Generative AI will finally make this a reality."

She foresaw a shift in e-commerce experiences toward more immersive, predictive, and personalised interactions, marking a breakthrough in hyper-personalisation.

Challenges and opportunities in 2024

Experts pointed out that persistent challenges in 2024, including rising cost pressures due to increases in the National Living Wage and business rates, weakened consumer demand. This was also impacted by higher mortgage rates, rising rent costs, slowing wage growth, and increased household debt servicing costs.

Experts encouraged retailers to seize growth opportunities in 2024. Retail consultant Maureen Hinton stated: "Retailers will need to deliver compelling offers, backed by strong finances, to succeed in 2024."

Strategies include exploring growth models such as retail media networks, adopting successful platform business models, reassessing asset classes such as retail parks, investing in innovative technologies such as gen AI, and tapping into new consumer cohorts.

The overarching message from experts is that while challenges persist, retailers equipped with resilience and innovation can navigate the evolving retail landscape and potentially experience a positive turnaround in 2024.