New research from Accenture highlights a growing disconnect in how the rising cost of living has been felt by businesses operating in the consumer industries, including retail and consumer goods, and their customers.
The study of UK executives and consumers, which was carried out in February before the invasion of Ukraine, found that, while consumers in the UK have been feeling the squeeze of the rising cost of living acutely, the extent of this was being underestimated by consumer industry executives.
Just 9% of UK consumer industry executives believed their customers had less disposable income than a year ago, and only 20% believed consumers are struggling with price increases.
At the same time, UK consumers expect inflation to have a significant impact on their spending in the next year. 71% said it was the factor impacting their outlook on the economy the most, while almost half (49%) said their budgets are already being squeezed as a result of rising prices.
For the retail sector, this means a notable shift in the way people are planning to spend their cash, with a significant drop in discretionary spend anticipated as a result of the rising cost of living.
Almost half (49%) expect to spend more on food and groceries, while other basic items such as home care essentials (33%) are also expected to take up more of people’s monthly budgets.
Meanwhile, planned spend on “luxuries” and “big ticket” items in the UK has plummeted, with 38% expecting to decrease spending on luxury products such as fashion or fragrances, and 34% expecting to spend less on clothes.
Commenting on the findings, Lynda Petherick, head of retail at Accenture in the UK & Ireland, said: “Consumers across the UK have been feeling the bite of the rising cost of living for some time, and we can anticipate this will get worse. While the full effect of this pressure on spending hadn’t yet been felt by business at the time of the research, it will likely become more pronounced in the coming months as consumers put their altered shopping plans into action.”
“Navigating the current external environment will be a balancing act for retailers. On the one hand, firms across all sectors are facing the impact of rising costs on their own operations and grappling with the best way to manage this.
“There is nevertheless an opportunity for retailers to make an impact here. Where possible, retailers should use the next few months to focus on increasing productivity and investing in digital to ensure they’re agile enough to continually adapt to changes in the market. Technology can enable employees to focus on business-critical tasks, whilst also reducing the retailers’ costs, minimising the need to pass on further costs to the customer at a time when value is a big consideration for the consumer. This will be important for brands to grow customer loyalty whilst boosting their competitive advantage with a more resilient approach to future disruption.”