“History may not repeat itself, but it sure does rhyme.”
Mark Twain was never short of a good aphorism, and this particular line has been playing in my head of late. I’m not an economic historian – maybe more of a keen amateur – but it does seem to me that we’re currently experiencing quite a few “rhymes” of our own.
It’s not too much of a leap to look at the latest economic data and think back to the other ‘roaring twenties’, a century ago, when the world experienced rapid industrial and economic growth following a debilitating global pandemic. Now, of course, we haven’t had a catastrophic world war to contend with, and in theory, there are a lot more checks and balances built into our system. But it’s worth spending a moment reflecting on just how rational our current consumer expectations appear when laid against the headwinds.
Yes, there are many Covid “winners” who remained in well-paid, secure employment throughout the past two years, with substantially reduced discretionary spending on holidays and leisure. It doesn’t surprise me that there’s been a rush to reclaim a sense of “normality returning” and to enjoy spending some of that built-up wealth. That’s showing through in the latest ONS data – retail sales volumes in January 2022 bounced back from the December Omicron blues with an astonishing 9.1% value and 3.6% volume growth from their pre-pandemic February 2020 level. ‘Bricks and mortar’ enjoyed a huge swing from online – which fell to just 22.7% of retail sales (its lowest proportion since March 2020), albeit still higher than the pre-pandemic watermark.
But just like the other roaring twenties, the party will not last for ever. I’m not a catastrophist but I do think any current euphoria from the relaxation of the previous covid restrictions might be short-lived.
We’ve been banging the drum on inflation and supply chain shocks for a while now – and with good reason. Consumers are facing prices at the pumps up 20%, and the much-discussed heating crisis is upon us, with annual household bills increasing by 50%. Public transport, food and alcohol are all heading in one direction. And that’s just what’s being felt in the pocket today. We know the supply chain is pricing in cotton prices which are up by 85%, and shipping containers up on some routes by 1,000%.
The Governor of the Bank of England is of course right to worry about the macroeconomic risk of endemic wage spirals, but hoping that workers are going to accept a cost-of-living squeeze without making more pay demands, out of some sense of patriotic economic duty, is for the birds. It’s been many decades since the UK faced a real inflationary spiral, and much of the workforce simply won’t have the household balance sheet to deal with interest rate rises. How will retailers cope with any broader rebalancing in that context, and how many are already – knowingly, or unknowingly – trading on borrowed time?
These are just some of the themes I’m looking forward to discussing with retail-guru, Steve Cook, at our upcoming FRP Retail Breakfast on the 3rd March. Steve is the CEO/MD of fashion, home and beauty at Debenhams and I know he will give us a candid, thought-provoking, and above all honest insight into the sector's Christmas trading figures, as well as a broader perspective on the future roadmap for UK retailers. We may not have all the answers, but I’m looking forward to a robust conversation and if you’ll join us, you’ll have the chance to test us out against one of Mr Twain’s other famous sayings – “It is better to keep your mouth closed and let people think you are a fool, than to open it and remove all doubt”!
How will retailers cope with any broader rebalancing in that context, and how many are already – knowingly, or unknowingly – trading on borrowed time?