Retail squeeze to tighten as spending power shifts away from young middle class families
Retailers face a strategic dilemma in 2023, as spending power shifts away from young, affluent families and into the hands of older families and pensioners, according to a new report published today (22 February 2023) by independent consumer consultancy ConsumerCast, UK Retail Outlook Spring 2023.
The report identifies 6.9 million better-off households, led by women and men in their thirties and forties, that will come under extreme pressure from higher mortgage interest payments and from an expected slowdown in wage rises in 2023. This poses a major problem for many retailers who have targeted this group of households for decades as their most important customers, with areas like clothing and footwear and home goods like furniture and electricals being especially dependent on them.
The 30-49s as a whole will see net income growth after mortgage interest payments slow to just 0.3% in 2023, with monthly income growing by just £2 against last year. Once rising prices are taken into account, it will mean a fall in real spending power for this age group of £266 per household a month, or nearly 7%.
Spending growth by 30-49s in 2023 will be just 4.6%, but even this low rate of increase will mean they are are forced to dip into whatever Pandemic savings they have or take on debt to fund basic living costs. Retailers need to think carefully about how they will respond to this change in consumer fortunes. Another wave of trading down by shoppers is likely, to budget ranges or to cut-price retailers like Aldi, Lidl, Primark and variety store B&M, as household budgets are squeezed.
At the same time, two other groups, the 50-64s and the 65+ are set to outperform in terms of income and spend growth this year, with the former seeing net income grow by 5.1% and spend by 6.2%. Meanwhile, 65+ households will see a very rapid 10.0% rise in net income and expenditure rise by 8.5%. Older households will be boosted by a series of factors, including the 10.1% rise in the state pension in April and rising interest and dividend income. Overall, 65+ households are the only ones set to see income grow significantly in 2023, by £233 a month. Even after inflation, this will mean a real net income increase of £18 a month or 0.6%.
Retailers will need to reassess their whole approach to their older customers to make sure they are really putting them at the heart of their strategy in terms of ranges, marketing and customer service.
For more information and commentary please contact Robert Carruthers, Director of ConsumerCast (07980 860301).