GlobalData Plc ($DATA)

Hello, everyone. Welcome to today's webinar called the U.K. Retail update. My name is Charlotte, and I work in the Customer Success team at Global Data. For those of you who aren't familiar with Global Data, we're one of the world's leading data and analytics providers and our mission is to help our clients decode the future to be innovative and more successful. Our speakers today will be Sophie Wilmot, who is an Associate Director in retail; and Patrick O'Brien Research Director. So before we begin, everyone is on mute and the session is recorded. So you will receive an e-mail with the recording and slide deck in a few days' time. And now without further ado, I'm going to pass over to Sophie and Patrick.

Thank you, Charlotte. Hi, everyone, and welcome to our U.K. Retail update Weber. Firstly, I'll be showing you our latest consumer confidence data, our shoppers are feeling about their prospects in 2026 and the implications of consumers of the changing macroeconomic landscape. And then I'm going to hand over to my colleague Sophie, who will share with you a very latest sector forecast and also showcase a few hot topic reports that we have coming out. We really appreciate you taking the time to join us today. We intend to be done within the 30-minute time stop. Please put any questions in the chat. We'll answer you directly off-line afterwards. Okay. So to consumer sentiment, let's have a look at how consumers are feeling. This is our future sentiment index, which is calculated by averaging out the 3 main measures of confidence namely economic outlook, personal finances and future retail spending prospects. Now in the last webinar in January, we asked you all in a poll whether you thought sentiment would improve or get worse by the end of Q1. We showed you the chart here, and the sentiment has started heading upwards after a poor few months at the end of 2025. And you were almost completely split on where the sentiment would increase or decrease 47% that increased 53% said it would decrease. But well, it got better for a couple of months, but then, of course, Trump in towing and it got a whole lot worse. In fact, March 4 was the biggest month-on-month drop since the first COVID lockdown. And the only larger drop other than that before COVID was 10 years ago after the Brexit referendum. So there is a lot of fear out there caused directly by the Middle East crisis. But is it going to go higher or lower in the next few months. So we'd like to ask your thoughts once again, we're going to be doing our next webinar at the end of Q2. So we're just going to open a poll and ask whether you think the consumer confidence will increase or decrease between now and June. Charlotte, could you please open the poll? That's great. That's something that you think consumer confidence could increase or decrease between and June. Please vote now, and I shall share the results shortly. In terms of whose confidence is falling, this chart shows the change in confidence since last month by demographics. So it's March compared to February. And as you can see, men are losing confidence more than women. And the youngest add-ups are, it seems barely bothered at all as indeed the lower socioeconomic gift -- on that 18 to 24 age group, I'm not sure if this is perhaps a lack of experience in how for conflicts and oil prices could affect them. But of course, many of them won't be paying energy bills. Maybe they don't see the connection between the Middle East colitis and prices rising and the threat of recession. But Charlotte, do we have the results of that poll?

Yes, 35% said increase and 65% decrease.

Okay. So yes, that's quite a strong summing for falling further. 65-35 that's quite a big gap. Of course, it's already at a very low level. But yes, it's hard to argue that there could be could be falling confidence to come. So confidence is down. But what does that mean for retail spend. Here, we have adjusted retail volumes, taking into account population increases and seasonality. And we plotted that against the future sentiment index shifted months ahead, which is where we are seeing the greatest historical correlation between sentiment and sales confidence being a leading indicator. It seems to indicate that sales will increase further before falling later in the quarter. But in this instance, the shock of the Iron conflict of consumer conference may well impact retail sales more quickly causing people to hold off whilst they see what it might mean for their personal finances. Now I just want to quickly mention our recently released global consumer sentiment tracker dashboard which is later on our platform, and it covers consumer sentiment in over 50 countries worldwide. The above chart shows confidence at a global level, and you can see that it is quite a lot in March, as you could imagine. Now you can track a number of metrics that each country and nearly all countries saw confidence fall in March. Except curiously, in the U.S.A., where younger generations, especially do not seem particularly worried about the impact of the crisis in the Middle East. And this shows that the narrative we are experience is not necessarily the same narrative being experienced elsewhere. Now back to the U.K. Investors have already hit retail stock prices harder than overall equity markets that put the all index is down a bit less than 10% since the crisis began, but U.K. listed retailers are down by, on average, 14% and it's midsized retailers that are going hit hardest. Here, we have the drop in share price on the vertical axis and plotted the retailers in order of size on the horizontal axis. Now it is apparent that home retailers, the ones I have circled there are being hit hardest with closes doing comparatively better. Investors are worried that big ticket spend and home projects will get delayed by the uncertainty being caused and of course, we are coming up to that critical spring period for home improvement. The recovery from the cost of living crisis was already weakening before the Iran conflict. And here are some of the recent media headlines. Unemployment was up, real wage growth was slowing. Already, we can see the immediate direct impact on consumers in the Middle East crisis. mortgage rate fixes are up about 0.5 percentage points already and could go higher if the Bank of England increases base rates. We've already seen fuel prices increase at the pump and food price inflation, which has been decelerating will start to accelerate again to almost 4% in the coming months based on forecast from their colleagues at TS Lombard. While this could increase much further, our forecasts are based on the crisis not significantly worsening even if it does not resolve immediately. However, we fully appreciate that the prices could get much worse in a scenario where food prices increase much higher to say, 8% is entirely possible. Energy bills won't rise until July, but are likely going to hit the 3-year higher. In short, consumers are going to have to spend more on food, fuel, mortgages and energy builds this year more than we had previously forecast and will, therefore, have less discretionary income to spend on nonessential retail. What has been a slow and fragile recovery from the cost of living crisis is threatened to be the rail Here, we have the asset income track up, which we've reindexed to take into account inflation to give a real discretionary income index. And it shows that while the spending power has been recovering since April last year, it's still around 6% less than it was before COVID. The impact of fuel energy and food increases will see much of the gains made in the last 9 months being reversed. Now we have seen that this shallow recovery has also been very uneven in that only the upper income earners can really be said to have recovered. Lowest-income quintiles still has defined on average, GBP 71 per week to cover a shortfall on essentials, either by dipping into savings or increasing debt. And this chart shows how discretionary income has changed by income quintile over the last 3 years. And you can see that while the recovery was lock sided towards the upper quintiles, the increase in discretionary income that the upper 2 quintiles have achieved has slowed down considerably in the last 12 months. Lower incomes may want to play a very small vial at such news, but it has major implications for retailers as these are most likely to spend, and they will not be feeling as well as perhaps we might think due to that slowdown in growth. This leads us to the savings ratio, which remains high and could start to rise again due to the combination of uncertainty and interest rates now likely to stay higher for longer. We had been expecting interest rates to fall to 3.25% by the end of this year. Now it seems economists expect them to stay at 3.75% in a best case scenario with the possibility of increases. Consumers with money will be incentivized to save ahead of splurging and this is another aspect to the impact of the crisis. confidence falling, potential spend increasing, saving more rewarding lease to lower nonfood retail spend. And with that, I shall hand over to Sophie to show what that means for our forecasts.

Thanks very much, Patrick. Okay. Hopefully, everybody can see that, okay. So moving on now to our latest U.K. retail forecast for 2026 and beyond. So as we've seen consumer confidence has tumbled, the macroeconomic environment has become more volatile in the last month and the economic outlook for the remainder of this year at least looks quite different 2 months ago. So as a result, we have adjusted our U.K. retail forecast. So as Patrick has mentioned, consumers budgets are coming under pressure once again with many people still feeling the effects of the cost of living crisis. So we do expect nonessential retail spend to be deprioritized. As a result, we anticipate the overall retail spend growth will be 2.6% in 2026, which is compared to our view in February of 2.7% growth. So this doesn't sound like too much of a change, but the breakdown of what will drive this has changed quite significantly, and I'll cover this in more detail shortly. So this chart shows U.K. annual retail spend growth on the line, inflation in the base bars and volume growth in the blue bars, the dusted line in the background shows our view of retail growth last month. So you can see that inflation will be the main contributor to growth this year, which we did expect previously that this has become a bigger driver with volumes now expected to be slightly lower. So retail inflation for 2026 is now forecast to be 2.2% versus our previous view of 1.8%, and volume growth is now forecast to be 0.9% versus -- sorry, 0.4% versus 0.9% previously. So we expect the higher prices across sectors owing to higher fuel costs impacting the transportation of goods and higher energy costs overall. As prices rise, shoppers will cut back where they can, leading to lower than previously anticipated volume growth this year. But overall, we do still expect to see positive volumes, which will be the first time in a number of years. The adjustment to our forecast are focused on 2026 at the moment due to the uncertainty of the length of the Iran conflicts and the impact on the U.K. economy. But as you know, we do review our U.K. forecast every month as well as our forecast for all of the countries we cover. So we will be making tweaks to 2026 and beyond as necessary depending on how the world develops. And then just to mention, from 2027 onwards, we are forecasting growth to slow as inflation eases and total growth comes more evenly from both drivers with volumes improving out to 2030. So looking at our latest forecast by channel. This chart shows annual growth split by channel in the line with online penetration shown in the blue boxes above the chart. So the blue line shows online annual growth and the green line shows in-store or off-line growth. The dotted lines in the background show our view in February. So you can see that we've brought down our 2026 forecast for both channels, but a bit more significantly for the online channel coming down from 3.8% growth previously to 3.6% growth now. The bigger change to online is because 82% of online spend in 2026 is forecasted to come from nonfood sectors, and we think nonfood spending is going to be hit harder by the latest changes to consumer sentiment, more on this shortly. We do expect that the online channel will continue to outperform this year with online spend rising 3.6% while off-line sales increased by 2.2%. Online spending forecast to account for 28.2% of the total retail market this year and that's 41.3% if you just look at nonfood. And we expect it to slowly increase to account for 30% of retail spend by 2030, rising at a fairly consistent pace each year of the online nonfood market matures. So now delving deeper into how our view of 2026 has changed by sector. As I mentioned earlier, we expect U.K. consumers to prioritize their spending on food and essential items this year. Shoppers will be holding off spending on nonessential products like items to their home, which can be deferred as well as clothing products that they could go without. So on the left chart here, you can see U.K. food and grocery growth in the line with inflation and volume shown in the page and blue bars, respectively. So the dotted line in background shows that our view last month was that food growth would be 3.5% in 2026, but we've now increased our forecast of 3.7%, driven by the higher inflation expected with tight margins on food items. We anticipate that grocers will be passing on the higher cost that they'll have to deal with, which will be due to the higher energy costs and fertilizer costs and fuel costs. Consumers have already traded down to cheaper supermarkets or cheaper products at their usual grocers during the cost of living prices. So we don't anticipate there will be too much switching happening. We expect that grocers will continue to capture spend from food service operators as shoppers cut back on eating out and by treaties or dine-in needles to create a more special dinners at home. In terms of nonfood, turn on the right chart here, we've brought down our forecast with 2026 growth now set to be 1.7% versus our previous year of 2.1%. As you can see, we are forecasting some volume growth, but this will not be the case in all nonfood sectors, as we will discuss in a moment. We think retailers will need to pass on some of the higher costs, but this will be more difficult to do in nonfood sectors where demand is weaker. So looking at the non-food sectors in more detail. As has been the case for around the past 3 years, we forecast that health and beauty will be the star performer in 2026, with spend rising 3.9%. This chart shows our view in February in the light blue bar on the left and our current view in the bright blue bar. So we have slightly reduced our growth expectations for Health and Beauty, but we still think this sector will be a priority for shoppers with volumes forecast to rise this year. The essential nature of toiletries as some beauty items will mean a chunk of this sector spend will be protected. And additionally, U.K. consumers are continuing to prioritize their health and well-being viewing buying health and beauty items in bettering themselves. We think there's some risk to less essential beauty categories like fragrances and makeup, where shoppers will be cutting back. But overall, this sector will take less of the hits than other areas. Moving on to the nonfood, the next size growth in terms of non-food sectors for 2026, and that's electricals. So we anticipate that growth will be 2.4% this year, down from our prior view of 2.7% growth. We're seeing replacement cycles driving some spend amongst more affluent consumers. So items such as laptops bought during the pandemic are now being replaced by those who can afford it. However, this is likely to slow off throughout the year as big ticket purchased are put on hold where possible. The global memory chip shortage caused by the rising demand for AI infrastructure is impacting the production cost of certain electrical items, such as games consoles, laptops, phones, and this is likely to impact the product prices, which may put some consumers off buying. Despite this, there are some categories within the electrical sector that are essential. For example, if your fridge, washing machine or oven breaks, you have to replace it immediately and it will safeguard some electrical spend regardless of weaker consumer confidence. So now looking at the home sectors. The close connection between the housing market and spending on home items is part of the reason why we have brought down our forecast for the home sector this year, with combined growth now set to be 1.8% versus 2% previously. With mortgage rates increasing, there will be fewer people likely to be buying for the first time or moving house, which normally helps to stimulate home product purchases. Coupled with this weaker consumer confidence will lead to big home projects being deferred and larger nonessential purchases, such as the sofa being put off. So we expect the bigger ticket categories like furniture will be harder hit as well as the DIY sector as home projects are put on hold. We anticipate that as we've seen throughout the cost of living crisis, the homewares will be more resilient this year with shoppers turning to those smaller items like cushions and throws as affordable luxury that can make living spaces still revitalized without having to spend too much. Finally, clothing and footwear was forecasted to see the lowest growth this year and the picture remains the same. We've predicted growth now more than half to 0.5%. As we've seen in recent years, shoppers can fairly easily hold off on clothing purchases to help save money instead of shopping from their own wardrobes or just buying or and/or just buying the bare essentials like children's wear. We expect it to be the fourth year in a row of volume declines in clothing and footwear. The accessibility of secondhand clothing also makes it easy for shoppers to switch from buying first hand from retailers to buying from other consumers on platforms like Vintage and eBay, saving them money while still getting nice and the branding to them. So here, we can see all the elements of the retail market on one chart. You can see total retail on the far left denoted by the shopping bag icon. The food and nonfood denoted by the books icon and then the non-food sectors on the right side. So to summarize what I've talked through, the major changes to our forecast are that nonfood growth is set all lower this year due to a lower forecast across all sectors, but a major drop in closing of footwear and a minor drop in health and beauty. Food growth is expected to be higher due to higher inflation and all of these changes combined mean that we've brought down our U.K. total forecast growth to 2.6% instead of 2.7% previously. So clearly, 2026 is looking challenging, particularly for nonfood retailers. But as we've said, the extent of the Iran conflict is unknown. And if the war ends soon, consumer confidence could get back on track and the outlook for retail spending may be more positive. As always, we will be closely tracking changes and we'll be updating our forecast at the end of each month, which you can find on our market analyzer or within our U.K. monthly retail forecast report. Okay. So for the final section, we wanted to showcase some of our recent topical insights that we thought you might find interesting. Just to remind you, each month, we run a survey of 2,000 nationally representative consumers. And most of the data collected in that survey does feed into our regular reports like our consumer sentiment report, but we do have some space in the survey to add in questions on newer key topics that we haven't covered elsewhere. We then create short topics reports using this data usually 3 reports a month. So do let us know if there's topics that you would like to see us covered in these reports in the future. So in the next few days, we'll be publishing our report on the impact of GLP-1 or weight loss drugs on user shopping habits. We've been asking for about 6 months now whether respondents are taking GLP-1 medication. And in our survey earlier this month, we asked these respondents how their shopping habits have changed since taking medication. So of those respondents who are taking weight loss drugs, over 65% have changed their food shopping habits. Over half said they're buying fewer snacks and over half said they're making more conscious effort to buy healthy food. And it's interesting to see that given weight loss drugs appetite, over 1/3 say they are now buying less food in general. The grocers are well aware of the rise in GLP-1 usage, and we've seen lots of products coming out targeted at users. But in terms of where users are buying less, grocers will need to try and find opportunities to entice them to buy to try and maintain their volumes. For example, highlighting those specific claims like high fiber or high protein or potentially creating smaller bite-size snacks, for example, that might appeal more. And looking at the impact on clothing and footwear now, 61% of GLP-1 users said that clothing and footwear shopping habits have changed. Almost half said they're buying a smaller size now, potentially driving additional sales for clothing retailers, but almost the same proportion, 46.5%, said they have put their clothing packages on hold where they're losing weight. And over 1/3 are trading down to cheaper items as they don't expect to continue to stay that size permanently. So it maybe likely to be aid in the growth of some of the value retailers like S and Primark. Items that cover a broader size range, for example, in women's wear that could be small, medium and large rather than 10, 12, 14 might be more appealing to shoppers who are in the process of losing weight. So clothing players should consider this as well as potentially creating products that can be adjusted, for example, like you can find in children's wear where school uniform skirts and child have adjustable waste. So we wanted to finish on a topic that is very relevant right now as we are fast approaching Easter next weekend. So the Easter intentions report is part of our U.K. occasion series. We have lots of reports in this series with the main occasion report published after the event once we've carried out a consumer survey, asking what shoppers spent, which retailers they bought from, which product areas they purchased. This is one of the intentions reports. So these are published prior to the major occasions, and they use consumer survey data that is gathered around a month before the event. So intended participation in Easter is higher once again this year at 68.5%, and this is the highest participation of any occasion after Christmas. Easter celebrations are becoming more home focused this year with a stronger intent to spend time with family and friends and a growing appetite for baking, while fewer shoppers plan to rely on takeaways and meals out. This signals greater demand for ingredients, shared treats and easy activity-based purchases. Novelty hot cost fun flavors, cupcake kits and small treat bags of chocolates will be popular items for shoppers to engulge in this year. And then looking at retail categories that shoppers intend to buy in the top row and have already bought in the bottom row, we can see that food and drink and gifting continue to underpin spending for Easter, but the balance has shifted a little bit this year. The standout change is a sharp uplift in planned spend on other seasonal items, such as home and garden, decoration and seasonal clothing, which really signals a broader spring refresh mindset. So we'll be publishing a spring decor report alongside our main Easter report this year as this seems to be a growing area of opportunity for retailers with consumers encouraged by social media to decorate their homes for the spring season, similar to what we've seen in terms of kind of autumn decor and the trend there. So here are the reports we featured today. A couple of them haven't been published yet, but will be out by the end of the month, our latest forecast report and our GLP-1 hot topic report, but the others you can find on the intelligence center now. Thank you for joining us today. We hope this has all been useful. And as always, please feel free to share any feedback or further questions you might have, and we'll answer those offline. As Pat mentioned, our next webinar will be at the end of June, and I'll now hand back over to Charlotte.

Thank you so much, Sophie and Patrick, for these super insightful insights on U.K. retail. Thank you for your questions as well, which our team will get back to. You can also e-mail [email protected] if you have any further questions, and everyone will receive the recording and the slide deck in a few days' time when that's ready. So that concludes the webinar today. Thank you all for attending. Thank you for your time, and thank you to our speakers, and hope you all have a lovely day. Bye-bye.