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Our Thought Provoking Insights

Reasons to be Cheerful? Outlook for H2 2024

Recent years have been the most challenging retail has ever seen. Pandemics, wars, and chronic overcapacity have adversely impacted every aspect of trading. Naturally, the customer is everything, and soft demand has reflected weakened spending power. Is this about to change?


The short answer is yes, but with a health warning – it might not last!! In the most recent period, the key challenge has been managing inflation. Most leadership teams grew up with very low price rises and no hard experience of dramatic cost hikes through the supply chain. Simply passing them on to customers in a period of very weak demand is clearly a very high risk, so getting pricing right has been critical. The worst of this is now well behind us and inflation has been slowing steadily, much faster in non-foods than foods.


In food, consumers dealt with price hikes by buying fewer items. Inflation has helped to make company trading results look OK but volumes have been down. More recently, inflation has been trending down and easing the pressure on household budgets. But volumes remain soft, reflecting continued pressure on consumer spending. 


In non-foods, the inflation story has been better. In fact for three months now there has been zero inflation across non-foods. However, consumers are still juggling priorities dealing with higher housing, energy, and transport costs. While these issues have been easing, demand remains relatively soft. 


A medium, side angle shot of two women wearing long coats and scarves. Both carry colourful shopping bags, passing in front of a shop window up a gradual slope.

So after a difficult first half, there are now clear signs the outlook is improving for the second half of 2024, and the prospect of a better Golden Quarter and Christmas. A change in Government will often improve sentiment, and that has happened. The very significant public sector wage deals will certainly underpin confidence and provide a stimulus for stronger demand, especially given the signals it will inevitably give to wage growth throughout the economy. 


Thinking about Christmas itself, 2024 promises to be much better. Last year was very weak, partly because so much demand was pulled forward by panic discounting by retailers for Black Friday. This will not be repeated and the year-on-year numbers will look far healthier. Food should also fare better, given lower price inflation and potential uplift from wage growth. 


While the outlook for the second half and maybe the first half of next year might be positive, there should be a health warning. Raising wages without improving productivity will give a short term boost which cannot be sustained. In and of itself, it will struggle to generate economic growth and inevitably, lead to inflation again. Retail remains an over-supplied industry and beyond this short window of positivity, I fear tough trading and cost challenges lie ahead.

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