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What do early-year retail redundancies mean for the sector in 2023?

Author: ICAEW Insights

Published: 13 Mar 2023

Thousands of UK retail workers lost their jobs in the first two months of the year – what are the prospects for the sector as a whole for the rest of this year?

We were just seven weeks into 2023 when think tank The Centre for Retail Research (CRR) issued an update showing that almost 15,000 shopworkers had been made redundant since 1 January.

The figure came as frightening news to a sector that is facing headwinds on multiple fronts. And the number continues to rise; by the end of February, CRR’s job-losses tracker had climbed to almost 16,500.

While on the face of it the numbers ring alarm bells for the retail sector, how do those redundancies feed into, or even shape, the broader prognosis for retail during the rest of the year?

Adrian Hodes, Senior Director at professional services firm Alvarez & Marsal and a member of ICAEW’s Retail Community Advisory Group, says that while the redundancy figure is certainly attention-grabbing, context is needed to give a broader understanding of what’s going on in the sector.

Evolving habits

Unemployment is currently quite low, hovering at 3.7% according to latest figures from the Office for National Statistics, Hodes says. “In parallel, consumers’ habits are continuing to evolve – which always happens – but that’s been on steroids since the dawn of COVID-19. Alongside that, we have the challenges arising from the cost-of-living crisis.”

Hodes says the combination of those factors is shaping retailers’ strategic visions around the sorts of jobs they need. “The evolving consumer is in lockstep with the evolving workforce.

“I met a former grocery colleague after the peak of the pandemic, and he said that his brand’s warehousing division had suffered a variety of COVID-related absence issues. But on the flipside, its dotcom business had experienced a significant recruitment drive: taxi drivers, pilots and other random, displaced professionals had signed up for shifts and really enjoyed it.”

Recalibrating space

In Hodes’s assessment, retail is in the middle of a ‘channel shift’: the nature of the roles that brands require is changing, with greater demand for people to staff the picking centres at the heart of retailers’ online operations and run fulfilment arms.

At the same time, bricks-and-mortar trade remains an important part of the picture – and is central to how retailers are “recalibrating space”.

M&S is a case in point, he says: “They’re enacting what they call a ‘store rotation plan,’ whereby they’re closing stores, but have announced 20 openings – the crucial point being that those stores are set to be bigger, better and smarter than the premises they’re vacating.” 

Similarly, IKEA is setting up in city centres, Asda is opening convenience stores and the discount grocers are moving in that direction, too. Plus, Primark announced in November that it’s investing £140m in opening at least four new branches – and will also relocate some of its current stores to more preferential areas.

“You would hope that there is some light in the darkness there – that the way in which retailers are rethinking how they allocate their space will provide an avenue of re-employment for some of those thousands of people who are losing their jobs,” Hodes says.

Thin incentives

Despite the challenges the sector faces, the consensus across the industry is that no one is getting the sort of help they want from the government through the UK tax system, although Hodes believes that existing schemes, such as R&D relief, are generally underexplored.

“People tend to think of R&D as all about people in white coats coming up with formulae, but it’s potentially relevant to any technological innovations that retailers may devise to drive efficiency, such as enterprise resource planning technology, or warehouse software systems,” Hodes explains. “Brands should take a look at how their technological innovations could garner tax breaks, which may be receivable in cash.”

Other routes include the potential to claim capital allowances on property, plus childcare tax breaks – and even national insurance relief for under-25s as part of the Apprenticeship Levy scheme.

“However, specially focused tax incentives for retail are thin on the ground. The sector’s view is that there’s a shortage of options, not enough relief available from those that exist and new initiatives aren’t arriving quickly enough. It will be interesting to see which incentives – if any – will be announced in the Budget on 15 March,” Hodes says.

Survival tactics

Hodes’ prognosis for the year ahead is that things will probably get slightly worse before they start to get better. “People are cutting back on spending and trading down to lower brands – and that’s not going to change in the near term. There’s no resolution in sight for the war in Ukraine, interest rates remain high and the energy price cap’s about to come off as we limp into the second quarter.”

Spending power will be polarised between different segments of the population, Hodes predicts. “The over-65, triple-lock pensions brigade will have cash to play with, as will younger people who are employed but still living at home. But the mainstream segment will continue to find it difficult.”

How does that tally with his expectation of better times? “Navigating the current challenges is all about cost control,” Hodes says. “Plus strong governance and sticking to KPIs. None of those are optional right now – they’re survival tactics. But the reason I’m optimistic is because much of the bad stuff has already happened – and, as a result, lots of retailers have got themselves into fighting-fit shape.”

Savvy retailers have got a grip on cost control, Hodes adds. “They’re investing in their brand power, carefully prioritising their capex and may be acquiring other brands to create value. In parallel, they’re investing in the customer experience across their stores and websites, and all the technology that sits behind the latter. So, I think those who’ve survived will come out of this period fitter.”

ICAEW’s Business Confidence Monitor highlights retail as a sector facing ongoing challenges. “With the cost-of-living crisis impacting consumer discretionary spend and inflation’s impact on product costs, energy and wages, the resultant squeeze has seen the retail sector identified as one of the Financial Reporting Council’s areas of supervisory focus for 2023/24,” says ICAEW Head of Business Simon Gray.

“In cases where sales revenue has increased or been maintained, the story behind the headline figure is often reduced volumes or a switch to cheaper, lower-cost alternatives.” Brand loyalty and providing an excellent customer experience is key, Gray says. “Embracing digitalisation and technology to better understand customer demand and adapting to changing behaviour are essential steps for long-term viability.”

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