Headlines professing the challenging impact of the cost of living crisis on retail are everywhere at the moment. From sky high inflation, astronomic delivery and rent costs, to reports of dwindling consumer spending, the outlook is tough for retail.
Our new spending report found that four in five (79%) consumers are spending more on day-to-day outgoings than they did a year ago, with three quarters (72%) saying they plan to cut-back on non-essential spending this year as the cost-of-living continues to rise.
But as consumers tighten their purse strings and re-prioritise spending, that doesn’t mean there aren’t opportunities that high street retailers can capitalise on.
We’re already seeing spending patterns start to shift as budgets tighten, with more emphasis on more affordable little luxuries than bigger ticket items.
But the real opportunity for high street brands is how they can capitalise on the fall in spending on luxury and designer brands.
Spend on luxury and designer brands fell 7% in the first 6 months of 2022 compared with 2021, while the number of transactions at luxury brands dropped 10% in the same period. This proves that consumers aren’t just spending less on designer and luxury goods, but are turning away from these brands altogether.
This downward trend looks set to continue into next year, with over half (59%) of consumers planning to spend less on luxury goods this year, while a further half (48%) plan on switching to cheaper brands for clothing and homeware as the cost-of-living bites.
This is the big opportunity for the high street. When recessions hit, consumer desire to purchase and treat themselves doesn’t go away, it simply changes shape. As shoppers choose to spend less and spend better, moving away from designers, the need to replace items or buy clothing won’t dissipate. The key for high street brands will be how they can capture this spend.
Traditional high street retailers are already benefiting from the gap that luxury leaves, with both total spend and the number of transactions at high street fashion brands up 11% in the first six months of 2022 compared with 2021 as consumers ‘trade down’ when shopping.
As the cost-of-living crisis continues to bite, high street fashion brands should position themselves as a great value alternative for quality designer goods to encourage people to make the shift away from luxury shopping.
To do that, serving luxury and designer shoppers relevant rewards and offers on the categories they shop the most can help divert spending.
Banking channels are an effective way to target these higher spending customers – targeting specific customers in the channels they already operate in with the brands they love to encourage switching and spending.
This doesn’t mean that retailers must engage in a race to the bottom on price, keeping price lines reassuringly expensive for this shopper set can help make the switch more appealing.
As shoppers prioritise their spending, and move away from luxury and designer purchases, high street brands that invest in this group now will expand their market share in the long run.
Download the UK State of Spend report here.