Spending is down as consumers adjust to the cost-of-living crisis, but bricks-and-mortar shops are seeing a rise in footfall. That's the key message from our Q3 retail review.

As private equity steps back and investors seek safe bets, it's a tough time that's going to get tougher. A positive trend for businesses operating traditional stores is that as consumers reassess their spend, it's clear they're redirecting it to the high street.

You can find out more in our quarterly analysis:

  • Nicola Sartori looks at the latest M&A trends and key deals
  • Senthil Alagar explains the impact of the cut-back economy
  • Luke Ritchie shares his views on the bricks-and-mortar bounce back.

For full insight, read the review.

There’s no shying away from the fact that it’s tough for retailers right now. Soaring energy prices and interest rates have ripped into consumer confidence. At the same time, lockdowns in China and a falling pound have hit the supply side. Q3 transaction data shows that deals are getting done, but at a lower volume than we’ve been used to for the last 12 months.

UK retail M&A volume/value


Deal volumes

There were nine transactions in Q3 2022, the lowest since the initial outbreak of COVID in Q2 2020, and even within those nine there were a few with elements of stress or distress. The figure compares to 15 in the same quarter last year.

Buyers raise the bar

In the main, private equity investors are starting to play a waiting game to see how current economics play out. Those that are going ahead are looking for stand-out assets. Not only must they tick the usual boxes for growth and strong management, but they must also be resilient to recession – of the nine deals that went ahead in Q3, five involved retailers with a wealthy customer base.

Deal spotlight – buyers seek safe categories

Historic data shows that in times of economic volatility, households typically prioritise spending on areas such as pets, children, and beauty.

In July 2022, European household and personal care group Dayes acquired a majority stake in UK-based Rosewood Pet Products. The deal will enable Rosewood to leverage Holland-based Daye’s experience to grow sales within Europe. It will also benefit from a larger overall market due to the boom in lockdown pet ownership.

Deal spotlight – unique and defensible

In September 2022, Dubai-based Chalhoub Group (a Middle Eastern retail partner) acquired a majority stake in Threads Styling, a London-based digital luxury retailer and personal shopping platform. The target asset ticks several of the boxes mentioned above:

Unique: it operates a social-first model, marketing to millennials and Gen Z through Instagram, Snapchat, and TikTok.

Growth potential: it has a footprint in the Middle East which will be strengthened by Chalhoub’s regional expertise.

Strong management: founder Sophie Hill will remain at the helm.

Defensible: with items such as an 18-carat yellow gold bar necklace for £10,290 on sale, this site targets wealthy shoppers who are likely to be insulated from economic tremors.

Opportunities for trade buyers

PE involvement in retail deals 2019-2022


Trade buyers, however, are seeing opportunities in the current market and they dominated activity in Q3, accounting for six deals versus three for private equity. If private equity continues to be cautious, we expect to see a readjustment in pricing which will benefit trade buyers.

Trade deal spotlight

In July 2022, Mike Ashley’s Frasers Group bought online fast fashion specialist I Saw It First from founder Jalal Kamani. Frasers has plans to integrate it with Misguided, another online fashion specialist that it bought from administrators in June.

Overseas opportunities

There was strong overseas interest in UK retailers, with international buyers accounting for four of the nine deals. We expect to see this ratio increase as international buyers take advantage of a weak Sterling.

We're having more conversations with US buyers. They're typically targeting UK assets with roughly a third of their presence already in the States (higher for private equity) or with a strong growth focus there, with an already established footprint.

The preparation game

Q3 M&A activity demonstrates buyers are still hungry for assets that are trading well and gaining market share. However, economic volatility has added an element of ‘wait and see’ for those on both sides of the transaction.

This provides an opportunity for companies to ensure they're completely ready for increased levels of due diligence when full buyer appetite returns. Tasks might include:

  • ensuring that performance data can be easily retrieved
  • removing any dependencies on current shareholders or single suppliers
  • incentivising the management team for a successful exit
  • thorough research into market positioning
  • reducing negative value drivers, such as staff disputes
  • ensuring intellectual property is protected by trademarks, etc
  • ensuring employment contracts are up to date.

The above is by no means an exhaustive list, but it gives an indication of what businesses can be doing now to prepare. We're having lots of confidential conversations with retailers who're thinking around next steps and are keen to be in the best shape for when the economy settles down.

For more insight and guidance, get in touch with Nicola Sartori.

Rising inflation has pushed the UK into a cost-of-living crisis, the worst of its kind for generations with the full impact yet to emerge. Many consumers have already begun to change their behaviours and reprioritise their spending. Our research shows almost 9 in 10 UK consumers will be forced to reduce their spending to help cover essentials, whether by trading down, shopping less frequently, or sacrificing certain purchases altogether.

This has significant implications for the UK retail and consumer industry, affecting sectors that were among the hardest hit during the pandemic as many businesses are just ‘getting back to normal’.


Many economists expect the economy to slow rapidly in the upcoming quarters, reaching the verge of a technical recession – two consecutive quarters of negative GDP growth.

Our research reveals four consumer cut back archetypes, based on how UK households perceive the cost-of-living crisis and resultant changes in their spending behaviour.

Expected financial impact on the UK retail and consumer industries

With the average household set to cut back £887 of their discretionary spending through to April 2023, UK retail and consumer industries are at risk of losing out on £24.9 billion of spending this financial year (12 months to April 2023).

The scale of the Cut Back Economy varies by different sub-sectors across the retail, leisure, and consumer industries. There are different consumer spending priorities based on the nature of the purchase in terms of value and frequency (eg, staple v discretionary):


The average household is looking to cut back £494, or £41 per month, on their food shop over the twelve months to April 2023. This has the potential of removing £13.9 billion of business across the sector in this period.


The average household is expected to cut back 10.6% of their spending on fashion, wiping out a potential £3.7 billion of business across the sector for this period. Consumers cutting back on fashion intend to do so by shopping for new clothes less often (47%) and conduct more research and price comparison (45%) before committing to a purchase.

Household goods

The average household is expected to cut back 5.4% of their spending on household goods, removing a potential £2.1 billion of business across the sector for this period.


The average household is expected to cut back 4.3% of their annual spend on beauty products, resulting in a potential £0.9 billion reduction of business across the sector for this period.


A quarter of households plan to cut back on electrical items, resulting in a potential £0.5 billion reduction of business across the sector for this period.

Household polarisation

Our research shows that the least affluent* are already experiencing inflation of almost 12%, compared to around 9% for the wealthiest households. This reflects the disproportionate impact of rising prices across essentials such as food and energy, which are seeing some of the fastest price rises.

The Retail Economics Cost of Living Tracker shows the average household saw their spare cash plummet 10.6% in May 2022 compared to last year, leaving them with £127 less to spend on non-essential purchases during the month.

Consumer cut-back spending behaviours


Substitution is the most common cutback strategy adopted by consumers, with around one in two consumers actively switching to cheaper brands, retailers, or service operators to combat cost pressures.

Scale back

43% of consumers plan to shop less frequently in response to the cost-of-living crisis, resulting in reduced footfall. Retailers and leisure operators will need to provide stronger incentives for consumers to visit their stores or pay for their services.

Shop around

Two in five shoppers (39%) intend to do more research, compare prices and shop around for deals before committing to a purchase. More than a third (36%) of consumers plan to use loyalty schemes and vouchers more often, while a similar proportion (31%) will look to buy in bulk for a better deal, where possible. However, less than 10% of consumers plan to use credit or buy now pay later schemes more often, suggesting a reluctance among households to take on more debt.

Consumer strategies: opportunities and risks

Companies will need to adapt to differentiate themselves from the competition and maintain relevancy as a more cost-conscious consumer emerges.

Investment in data science and digital transformation is essential to ensuring that any decision-making is strongly data-driven.

Alongside a cost-of-living crisis, manufacturing delays, shipping backlogs and labour shortages are adding additional layers of cost and supply chain complexity for consumer-facing businesses. Two areas to consider are:


Using shorter, more flexible supply chains will help reduce reliance on single countries or manufacturers. However, moves towards on-shoring or near-shoring can impact margins due to local cost differences.

Inventory management

Establishing alternative supply sources to enable fast-tracked volume delivery capability.

Finally, hospitality and leisure businesses must not lose sight of longer-term environmental, social and governance (ESG) goals, despite the current cost and margin pressures.

What’s next?

The most recent reports anticipate inflation peaking at 18.6%, yet one in eight respondents to our latest Business Tracker Survey said they didn’t have sufficient working capital to deal with an inflation peak of 11%. Business leaders are experiencing difficult times, with costs accelerating at a pace.

However, by implementing sophisticated strategies and agile operating models that demonstrate a deep understanding of the Cut Back Economy and how consumer behaviour will likely play out, retailers and consumer-facing businesses can position themselves to manage the challenges ahead.

Watch our launch webinar

For more insight and guidance, get in touch with Kevin Coates.

Online retailers were the big winners from COVID-19, with lockdown and social distancing measures stopping or severely restricting in-store trading. In the UK online trade accounted for approximately 20% of total sales in early 2020 – doubling to 40% in 2021.

In 2022, the story is different. 

Online retail is finding its level at around 25% of total sales in June 2022. Well down on the height of the pandemic, but still materially above previous levels. Digital darlings Ocado, Asos, and Boohoo have all experienced falling revenues.

It looks like consumers are reducing their online spend in favour of returning to stores.

The August heatwaves helped drive increased footfall across both shopping centres and high streets, yet customer traffic remains below pre-pandemic levels. Despite rising inflation and cost-of-living challenges biting across both store and online channels, the overall balance of spending is clearly trending back toward physical retail. However, this is being countered by the cost-of-living crisis, which saw retail footfall decline in September.

Nevertheless, as customers move past pandemic caution, Boots CEO Seb James expects to attract 6-7% more customers in the Christmas quarter this year compared to 2021.

Destination shopping centres are already tapping into this phenomenon and dialling up experiences to levels not seen prior to the pandemic. With retail mainstays like Oxford Street losing some lustre in recent years, investment in destination centres like Westfield London continues at pace. Multiple transport links make this centre one of the most accessible in the UK, with the pure retail experience supported by a growing array of restaurants, arts and entertainment options. Centres like Westfield also became a cool haven for shoppers to escape the London heat in August.

Similar trends are common in the United States, with massive developments in National Harbor, outside Washington DC, and Easton Town Center in Columbus, Ohio leading the way. Both of these locations are destination attractions featuring a fusion of indoor/outdoor shopping and entertainment options, upscale dining, hotels and residential towers.

The big winners from this shift are retail consumers. Benefitting from even more choice to shop the way they want.

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