Proactive Investors - UK retail shoppers could return online, while a focus on value will persist despite slight consumer recovery expected in the second half of 2024, analysts believe.
Return to online?
For much of the years after Covid, online retailers have struggled due to shoppers preferring to head to high streets rather than websites.
This has previously caused problems for e-commerce groups such as Boohoo (LON:BOOH) and Asos, both of which have experienced sharp share price declines since the end of lockdown.
However, early signs have highlighted that over the past few months, some have opted for online shopping over in-person.
The British Retail Consortium reinforced this after revealing footfall in December fell by 5% year-on-year.
"December's heavy rain left many shoppers reluctant to brave the elements, who instead opted to browse online before making final purchases, or shop online altogether,” BRC Chief Executive Helen Dickinson said.
Despite the switch in trend, Stifel is cautious about hedging all its bets on online sales.
“With the majority of shoppers still preferring to primarily shop either in-store or both in-store and online, we view multi-channel retailers as best placed to succeed,” the London broker said.
Value Focus
Whether shopping online, in person, or both, Stifel is confident that the cost-of-living crisis is still affecting UK spending patterns.
According to its research, 85% of customers reported being ‘very worried’ or ‘slightly worried’ about their financial prospects.
Therefore, price and value will be a key area in the minds of shoppers, paving the way for discounters like Aldi and Lidl to build on their successes of last year.
Additionally, ‘deep discounters’ from China such as Shein and Temu could also benefit, Stifel added.
Consumer Recovery
Wage inflation combined with slower increases in food, energy and fuel prices could provide some well-needed tailwinds for the consumer in 2024.
Store price inflation remained flat in December at 4.3%, according to the BRC, with food inflation sitting at its lowest level since June 2022.
Stifel believes these factors will help drive recovery in the UK.
However, the broker was quick to note this could be disrupted by mortgage rates remaining high, even despite Halifax and HSBC (LON:HSBA) both cutting theirs on Thursday.
Stifel added: “With mortgage rates remaining high and savings depleted by the cost-of-living crisis, we expect [consumer recovery] will be delayed until the second half of the year.”
What about leisure?
If Stifel is correct about consumer recovery, there is ample chance for the leisure sector to continue performing positively.
Towards the end of 2023, hospitality and leisure companies showed impressive resilience, surprising investors with earnings upgrades and better-than-expected sales.
The performances even caught the attention of private equity, which saw an opportunity due to the discounts in market valuations.
Wagamama owner The Restaurant Group PLC (LON:RTN), Franca Manca owner Fulham Shore PLC, and bowling group Ten Entertainment Group PLC were all acquired by private equity last year, while companies like City Pub Group PLC (LON:CPC) were snapped up by bigger rivals.
However, one factor which could throw a spanner in the works is climate change.
Travellers are now looking to book holidays in colder countries such as those in Northern Europe, according to one of the region’s largest travel agents.
Dana Dunne, the boss of eDream Odigeo, the largest online travel group in Europe, said areas which are typically overlooked are now being considered following climate-related issues like the wildfires in Greece and extreme heat in Southern Europe.
“We see a shift, with those [cooler] places seeing very material increases during the hottest part of the year,” he revealed.
Sweden, Norway, Denmark and even cooler places in northern Spain have seen rises in bookings during these warm periods.