The rise in the cost of living is affecting all of us. We may not see the same short sharp shock to the system as the start of the pandemic, but the impact on consumer spending may cut deeper and last longer.
The energy price cap has risen over a 12-month period to February 2022 by 73%, Over the same period the cost of diesel on the forecourt increased by 28% and according to Kantar, February 2022 saw the fastest rise in food price inflation in 8 years. These inflationary pressures are hard hitting and due to global drivers, such as the conflict in Ukraine, climate change, and lockdowns in Asia, are difficult to control at a national or local level.
For those on low incomes this will present stark choices. Discretionary spending for those at median levels of income will be limited, especially when it comes to comparison goods and leisure. People will be assessing where they can cut back and what luxuries they will do without.
From an occupier perspective, we are likely to witness further polarisation with value or food-based offers attracting a higher percentage of available spend. We expect to see these sectors enjoy further growth both in terms of store numbers and footprint.
To tempt consumers to purchase non-essential items, more fashion retailers with branded products are likely to offer “buy now, pay later” options. Whatever view people take on the ethics of thepost-payment services offered by the likes of Klarna, Clearpay, and Laybuy, the reality is that as purse strings tighten, more companies will use them as a tool to improve sales.
At the opposite end of the scale, mid-market aspirational and high-end occupiers are unlikely to see a significant impact on sales and we expect to see growth in this sector. The more affluent consumer may well be more discerning in their purchasing and prioritise quality and provenance.
The effect of this continues to hasten the demise of the squeezed middle. Occupiers who have no clear proposition and compete on price only without a clear sense of values, will suffer most.
The relaxation of pandemic restrictions over a sustained period, together with growing confidence they are not about to be reinstated, has led to customers returning to physical stores. Yet people are more considered in where they shop and the squeeze on spending will further influence those decisions. Necessary spend will be conducted in their immediate locality, this is especially true for those most sensitive to fuel price rises.
For discretionary spend, the consumer will conduct this in locations that offer something compelling. They will need a depth and variety of offer and provide an attractive environment with high quality public realm and architecture.
Occupiers, investors, and owners need to be increasingly aware of the ongoing impact of rising living costs. In the coming months, the priority is to adjust and review their strategies appropriately to maximise the potential of their assets and manage them appropriately.