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By Ralph Robinson, Head of Retail & Consumer Markets, BJSS
Whilst retail sales rose by 1.4% in April compared to March, if we look at the longer-term trend, sales volumes are actually down 0.3% compared to the previous three months. Retailers looking for some form of respite from today’s ONS figures will be disappointed; after years of turmoil from Brexit to Covid and now the Ukraine conflict, consumer confidence remains low and macroeconomic shocks like high inflation will continue to pile greater pressure on retail sales and margins.
Online sales value continued to fall 10.9% year-on-year, but grew by 6.2% compared to March, giving retailers some hope that online could be the source of growth for the sector. However, retailers might be concerned by ‘golden child’ Amazon’s results last month - Amazon posted its slowest ever sales growth in Q1 this year, with reductions in cash flow resulting in a $3.8bn loss that quarter and knocking 10 percentage points off Amazon’s share price. This will be a blow to retailer confidence in online, especially as the government is coming to the end of its review period of a potential 1% sales tax on eCommerce. Whilst many industry leaders have been pushing for this for years to help bricks and mortar stores compete, Marks & Spencer Chief Financial Officer Eoin Tonge recently warned the government against this potential tax, saying it would force retailers to invest away from physical stores to make up the difference. Indeed, after a prolonged pandemic, this move would disadvantage retailers that redirected their investments into eCommerce to weather that storm.
There is some good news, however, if you look hard enough at the figures. Notably, the fashion and department store sectors continue to perform above average, with volumes for both rising 1.3% month-on-month. This is especially positive for the fashion sector, as sun-starved Brits stock up on holiday essentials in the bout of sunshine we’ve been having and ahead of the holiday and wedding season. Sadly, both seem to be driven by the weather, so retailers will be nervously looking to the MET Office for a bumper summer to prop up consumer confidence amidst a barrage of negative macroeconomic and political trends that are otherwise putting pressure on sentiment and spending.
Consumers are evidently cutting back on non essential spending, with food store volumes up 2.8% month-on-month compared to non food store sales, which are down 0.6% for the same period. Yet, despite this trend, the cost of living crisis continues to put pressure on everyday food spending. Hearing Tesco’s Chairman, John Allen, warn that customers are asking staff to stop scanning goods through the tills when they hit a certain spend, I’m taken back to the recession of 2008, when we saw exactly the same behaviour. This, of course, marked the beginning of the unstoppable rise of the discount grocers, who have stayed dominant ever since. But now, with discounters representing a huge 13% of the market, the big four grocers will certainly be discussing how they might maintain market share in the event of a possible recession.
Interestingly, however, whereas in previous months we’ve seen retailers reacting to the cost of living crisis with what I’d consider token efforts, retailers finally appear to be accepting their crucial role in easing the pressure on vulnerable shoppers. Iceland, for instance, is now offering shoppers aged 60 or over 10% off their food bill every Tuesday, in a commendable effort that will genuinely make a difference to quality of life. With energy bills rising, causing an average household to spend nearly £60 more per month, this type of promotion will offer welcome respite to those who need it most.
Amidst an unprecedented combination of pressures on supply chains, labour costs, inflation, consumer confidence, and, of course, the physical health of the population, many are looking to chancellor Rishi Sunak to do more ahead of the Autumn budget. Consumers and retailers alike are feeling a growing sense of powerlessness in the face of factors that are simply out of their control. Indeed, there are good reasons to be pessimistic. With potential double digit inflation on the horizon, we should look back to the last time inflation peaked to such levels and remember that there is no quick fix - such high inflation typically takes years rather than months to come down again. As such, retailers and consumers need to bed in for the long-term and review investment behaviours to match the ‘new normal’ of reduced confidence, high inflation and uncertainty on the high street and online.
Whilst these results are mostly discouraging for the majority of the industry, with sales value being driven by inflation against a backdrop of falling volumes, we do take some hope in the results for fashion, department stores and, to an extent, online retail. But, more importantly, we’re encouraged by the fact that retailers seem to be finally investing in promotions that will make a genuine difference to shoppers, providing a port in the storm for those hit by external pressures that aren’t going anywhere soon.