Retail Impacts to Watch for as Energy Costs & Inflation Pressure Europeans

From London to Berlin and capitals across Europe, governments and the media are sounding the alarm regarding the difficult winter ahead.  With inflation already elevated and the war in Ukraine raging on, consumers across the continent are preparing for much higher heating costs and potential limits to energy usage. With energy demanding a greater percentage of household wallets in the coming months, consumer spending will be impacted for retail, dining, and leisure.

Certain consumer businesses face more risk than others.  Travel, entertainment venues, discretionary retail categories (e.g., jewelry, electronics), and higher-cost restaurants are likely to lose sales. However – even with the challenging times ahead – opportunities will arise for certain retail segments. Off-price retail, low to moderately priced clothing, grocery stores, and economical restaurant options may all stand to benefit.

An article in The Guardian (July could be ‘lull before the storm’ for retailers and consumers) took a look at the economic impacts on the Europe’s near-term horizon.

Excerpts from The Guardian:

Helen Dickinson, the chief executive of the BRC said the summer was “an incredibly difficult trading period”. “Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation,” she said. “The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households… Paul Martin, the UK head of retail at the advisory firm KPMG, said: “The summer could be the lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates. With stronger cost of living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure… Shoppers are already switching to discount stores, dropping brands in favour of supermarkets’ own-label goods and trimming spending on luxuries such as subscription services and gambling, according to data from the Nationwide building society.

Gloomy forecasts for late 2022 and into the new year aside, the combination of a difficult economic environment, geopolitical events, and cooling temperatures point to some unique opportunities for certain retail segments in the coming months.

At Planalytics we help businesses plan for and manage the ever-present financial impacts of weather and climate on consumers, quantifying how the conditions outside drive footfall/traffic and specific product purchases. For the winter ahead, the “conditions inside” will also be influencing weather-driven demand trends.

For many households (and places of business) the energy supply crisis will force building temperatures lower this winter, either out of financial necessity or due to government conservation programs.  In an article entitled “Colder offices and fewer Christmas lights … what Europe is doing to cut down on energy use “, highlights some of the measures different countries are taking to reduce energy consumption. Although some conservation is slated to come from turning off signs and lights, plenty of locales are eyeing thermostat settings as a way stretch energy supplies.

People will face chillier-than-normal conditions in more places and for more hours of their days and this means clothing categories such as knitwear, thermals, fleece, boots, and coats will be in demand.  Discounters, off-price retailers, and moderately price chains stand to gain (rather than higher-end brands and department stores) as shoppers looking to bundle up will be looking to get the most for their money.

When, as an example, Planalytics’ weather-driven demand metrics confirm that a few degrees drop in temperature in a certain location produces a 15% lift in knitwear demand, the analytics are basing calculations on the outdoor climate.  For the 2022-23 fall-winter season, such consumer purchasing decisions will further be influenced by everyone’s indoor environments.

Similarly, certain “warming” food categories – coffee and tea, soups and stews, pastas, roasts, etc. — will be higher demand. This will provide sales opportunities for grocery stores as more people opt to eat in-home but also value-priced quick-serve restaurants and takeaway or delivery options. People will still want to take a break from their own kitchens, but these out-of-home outlays will again target value and spending [wisely] due to tighter personal finances.

In Europe and elsewhere, consumers are indeed standing on the doorstep to a difficult winter period with inflationary and recessionary pressures in play. Retail and consumer businesses are rightly preparing for the risks but there is a “silver lining” emerging for those businesses selling essential products at attractive prices.

This winter, the physiological response to the weather will not be limited to the outdoors and will include “indoor” climatic conditions as well. Visit Planalytics to learn about predictive weather-driven demand analytics and how business can quantify and proactively manage the impacts of weather on consumer purchasing.