Retail may not get quite the post Covid bounce back it is expecting

Mon, Mar 01, 2021

The UK economy is poised to bounce back like a "coiled spring" releasing large amounts of "pent-up financial energy" once Covid-related restrictions are released, according to the Bank of England's chief economist, Andy Haldane. He believes that consumer confidence will return like "a light switch being flicked" and people will start to spend and socialise. All of this sounds very positive, but hold on a moment, because when it comes to retail, there are some shadows of doubt hanging over this rosy scenario.

First of all, retail spending overall is not very "coiled". In fact in total, across online and physical stores, it has performed remarkably strongly since the first phase of the Covid-19 crisis, being in mostly positive year-on-year growth since last June.

Much of the retail growth has been propelled by the extraordinary increase in home consumed food and drink. In the run up to the Coronavirus pandemic, this market was growing at 2-3% a year, but as people return to eating out in restaurants, cafés and pubs, the recent excess growth is almost certain to grind to a halt, and the grocery sector will probably go into outright recession.

Retail recoveries are often driven by people splashing out on their homes as they regain confidence, leading to a rapid uptick in sales of furniture and other home goods as the housing market recovers. Yet the UK is already in the midst of a housing market boom and locked down Britons have already been spending furiously, online at least, on everything from furnishings to make home life more comfortable to bigger items like garden offices. So the 'big ticket' bounce back is not going to be part of 2021's consumer recovery.

Finally, retail has been boosted by the way that experience spending in a wide range of areas from restaurants to gyms and foreign holidays, has been absolutely crushed by Covid lockdowns. When this bounces back, there will be a huge re-diversion of spending power back to these areas and away from buying physical goods.

However, there is one silver lining to this story. The Cinderella areas of retail during the pandemic, fashion and beauty, are likely to see a very big, rapid rebound as people start to socialise in public again. They will want to refresh their wardrobes and overhaul their looks. These sectors above all will be where the retail opportunity lies as the UK consumer comes out of lockdown.


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