What do NEXT and highstreets pressures tell is about the challenges and opportunities present currently in hospitality industry?
NEXT released its results last week, with some possible read across to hospitality cropping up in the commentary. NEXT states it has faced three considerable shocks which would also be felt by hospitality in the last eight years: a change is consumer behaviour and buying; the pandemic; and now the cost of living squeeze. In terms of external ‘shocks’, NEXT states that consumer spending has been ‘resilient’ despite the ongoing cost of living crisis. It does warn however that, ‘as the effects of mortgage rate rises start to flow through into household budgets and energy bills remain elevated, we may start to see a departure from the current levels of stability’ regarding consumer finances.
The report suggest that rent prices are decreasing, creating an opportunity for retail and hospitality businesses to either renegotiate current tenancies or move to locations which maximise sales and exposure. Retail shops are being driven off the highstreets by online competition meaning space is available for leisure and hospitality operators.
The location of retail and hospitality businesses is set to change with predictions that shopping centre sites and retail parks are set to suffer. It is suggested that hospitality businesses focus on capturing the rise in city centre visits and choose locations with good high street sites.
Energy costs are largely impacting retail margin, with a similarly high effect on the hospitality industry.
Retail and hospitality are, to some extent, competing in the same labour market and wage inflation is set to reduce profit margins in 2023 but is essential due to both regulatory inflation and maintaining competition between market participants.
A large issue which has affected both the retail and hospitality industry is supply chain problems yet this is seeing a recent improvement due to improved factory gate prices and having opportunities to once again build overseas supplier relationships.
An area for future discovery is set to be credit purchasing. The company states that its credit customers spend over twice as much as our cash customers. This could represent a relatively underexplored avenue for hospitality businesses, where larger chains could opt to drive spending through implementation of something similar to NEXT credit accounts. UK customers are becoming increasingly familiar with buy now pay later services such as Klarna, with customers able to use this method to purchase a wide range of goods and services. While credit is becoming a larger part of the consumer’s spending preferences, the ratcheting of credit available to consumers for everyday expenditure could have negative longer-term macroeconomic implications. Should this be the future direction of hospitality?
The retail and hospitality industry have clearly been faced with issues in previous years however there is clear evidence that these sectors are flexible and will hopefully continue to bounce back given the current opportunities for growth.