The UK’s wholesale retail sector ranked among the top industries experiencing insolvency in 2023, and given the sustained economic uncertainty in the UK, it remains in a challenging position. The pandemic expedited existing shifts in shopping habits, emphasising online preference. The cost of living crisis and elevated inflation rates have also intensified these struggles. 

Ongoing challenges include the impact of changing consumer priorities, with a focus on value and increased spending on leisure and tourism. This has resulted in a steep overall decline in traditional retail sales. Let’s take a moment to review the cumulative impact of these developments to get some more clarity on the industry’s present situation.

Sector Overview

Retail sales volumes experienced a sharp 3.2% decline in December, marking the steepest drop since the UK’s Covid lockdown. The Office for National Statistics (ONS) attributed the fall to a notable decrease in demand for both goods and food, indicating a shift in shopping patterns. This was likely influenced by early Black Friday sales in November 2023. 

Non-food product purchases fell by 3.9%, particularly impacting department stores. Food sales also dipped by 3.1% in December, contrasting with a 1.1% increase in November. The retail sales slump in December was the most significant monthly decline since January 2021. Moreover, there were approximately 119,405 job losses in the UK’s retail sector in 2023. 

Despite strong Christmas sales reported by supermarkets, the broader retail sector faces uncertainties due to rising prices affecting consumer spending. It also raises concerns about the UK’s economic trajectory, potentially signalling a mild recession in 2024. The Bank of England interest rate cut will also possibly be delayed as a direct impact of this inflation. 

Sainsbury’s RETAIL Banking Business to Halt

J Sainsbury is set to withdraw from financial services and divest its fully-owned Sainsbury’s Bank. The company is redirecting its focus to retail after a comprehensive business review. The supermarket announced a “phased withdrawal” from the bank, opting to deliver financial services through a “distributed model” using third-party providers. The move will impact credit cards, store cards, loans, savings accounts, and the Argos store card.

Numerous UK retailers, including Marks and Spencer, John Lewis, and Tesco, entered financial services in the 1990s during robust lending growth. However, intense competition in savings and mortgage markets due to rising interest rates has spurred speculation about mergers and acquisitions, especially among smaller banks struggling against larger peers.

Sainsbury’s plan involves offloading the bank from its balance sheet, allowing another provider or providers to operate it under the same brand. This process, akin to “white labelling,” has been successfully implemented with the supermarket’s insurance products. The phased withdrawal from the core banking business is anticipated over time.

Sainsbury’s phased withdrawal from its core banking business may involve the sale or disposition of assets related to credit cards, store cards, loans, savings accounts, and the Argos store card. These distressed assets could become available for acquisition by investors seeking entry into the financial services market or looking to expand their existing portfolio. 

This is a sign of the challenges faced by the UK’s retail banking sector, especially in terms of scale and specialisation. Sainsbury’s Bank currently operates 1,350 cash machines and 225 travel money bureaus across its UK supermarket stores. The team has assured customers that services and products would not be immediately affected by this announcement.

Lidl’s Walsall Warehouse Closed 

Lidl is set to close its Walsall warehouse, a move that puts 100 jobs at risk due to the facility no longer meeting the company’s operational requirements. The discounter is engaging in a consultation period with affected staff, presenting them with the choice between redundancy or redeployment within 12 months. 

The 50-year-old Walsall site, acquired by Lidl in 2008, has been deemed unsuitable for its modernisation and expansion plans. The supermarket aims to redeploy most workers at alternative locations, such as its Wednesbury warehouse. They are also creating two new managerial positions as part of a broader logistics restructure. 

Such closures and restructuring have come to be a trend in the UK’s retail sector within the last few months, and highlights the need for the country’s retail sector to adapt and strategically plan for operational changes. As supermarkets transform, businesses should stay vigilant, explore opportunities, and consider strategic partnerships or acquisitions to navigate the evolving landscape successfully.

M&S invests £30 million in Scottish stores

Marks & Spencer announced a £30 million investment in Scottish stores, set to result in over five new store openings and expansions within the next 18 months. This will create more than 6,500 jobs across the country.

As part of its 2022 estate restructure initiative, M&S is fast-tracking the closure of 67 larger stores within the next five years, including the Sauchiehall Street branch in Glasgow. However, this has also led to some mixed reactions in the market as these plans also involve the closure of the St Nicholas Street store in Aberdeen, which is one of the brand’s largest outlets in the UK. 

In addition to these changes, M&S has outlined specific plans for new and expanded locations in Scotland. This includes the introduction of a new food hall in Linlithgow later this month, a new store at Dundee’s Gallagher Retail Park this summer, and the inaugural M&S opening in Largs with a new foodhall anticipated in early 2025.

The M&S team has expressed confidence in the future of retail in Aberdeen, citing the investment as a significant commitment to the city centre’s retail landscape. However, the impact of these new store openings and closures on the brand’s overall market presence will only be revealed in due time. 

Predictions for Independent Retailers in 2024

The independent convenience sector is in for a tough ride in 2024, offering no respite for complacency. Here are a few trends set to reshape the industry in the year to follow:

Rising business costs: High business costs, including energy, money, rising wages, and materials costs, will make it even more challenging for independent retailers to stay afloat in the market.

Cautious consumers: Inflation is easing, but consumer spending remains low due to the cost-of-living crisis. Shoppers seek value, making it challenging for retailers to offset increasing overheads by raising prices.

Tobacco and vaping challenges: Changes in tobacco and vaping categories, including a decline in tobacco sales and potential vape legislation, may impact the success rates of smaller general stores.

Industry competition: Large multiples have a scale advantage, impacting independent retailers with higher overhead costs. Ongoing competition from grocery multiples, especially discounters like Aldi and Lidl, poses a threat to independent retailers all across the UK. 

On the other hand, technology, including electronic shelf-edge labels, self-checkouts, and AI-driven planograms will play a key role in adapting to changing consumer behaviours. Food-to-go and personalisation are identified as underexploited opportunities for profitable growth. Moreover, community-focused shopping experiences are evolving, and independent retailers who are swift to take on this opportunity will be able to sustain successfully.