Retail markets diverge as headwinds gather pace

Global retail sales growth softened during the third quarter. Many international retailers are navigating a fast-changing landscape, with headwinds and tailwinds affecting the performance of local retail markets in different ways. With consumers becoming more selective in their discretionary retail spending, be it online or offline, the focus for retailers has shifted to improving profitability.

International retailers have become more cautious in acquiring new space and are placing more emphasis on optimizing profitability across their store portfolios. Leasing activity has started to slow in several markets, particularly where the sharp rise in energy costs is being viewed as a ‘second rent’ by retailers. Pockets of growth remain, with some major retail brands securing high-quality retail space in markets that are likely to see resilience and growth. In some cases, retailers are looking beyond the current disruption by securing prime space with 15-year long leases at more favorable terms.

Future trends: Accelerated blurring between physical and online channels

Outlook for 2023: The retail sales outlook continues to soften, with consumption expected to slow further through 2023 in most major markets. International retailers have become more cautious, although well-capitalized retailers continue to secure high-quality space in markets that still enjoy healthy consumer demand or where they can secure space at favorable terms. With consumers becoming more selective in their discretionary retail spending, be it online or offline, the emphasis has shifted to improving profitability. For example, more retailers are introducing or testing fees for customers looking to return goods outside a physical store.

Long-term: The increased focus on profitability will further accelerate the blurring between physical and online sales channels, and the most successful brands will find a balance between the two channels. Growth in global online sales is expected to pick up again once real incomes return to growth after moderating in several markets during 2022. However, it is increasingly clear that a point of equilibrium is in sight for many major retail markets.