January Marks a Key Turning Point For Retail, But a Challenging Year Lies Ahead

    By Ralph Robinson, Head of Retail & Consumer Markets, BJSS

    Ralph Robinson

    January's retail sales figures mark a key turning point for UK retail and a much needed confidence boost for retailers hoping for a more predictable and robust demand cycle.

    Total retail sales value rose by 16.5% in January versus last year and is even up 9.1% versus the same period two years ago. This is a significant indicator of prosperity, especially against the backdrop of the highest level of CPI inflation since 1992. Footfall is also around 20% lower than two years ago.

    Value is up by more than volume, so much of the growth can be attributed to inflation, driven by a rising cost base and less deep discounting.

    The proportion of online sales sat at 25.3%, which whilst understandably down compared to a year ago when many shops were closed, was up 5.5 percentage points versus two years ago.

    Non-food customer penetration was up 10.3% percentage points to 41.5% in the same period according to the BRC. This will be welcome news for online pure-players,  suggesting that the growth of demand for home delivery is both irreversible, and further strengthening following the pandemic. 

    Yet, not all retail sectors see the same boost from the January figures. Most notably the food sector, which until now has seen the most consistent demand throughout the pandemic, saw volumes fall by 2.3% vs January 2020, and 0.8% versus two years ago.

    As the hospitality sector reopens, with many workers returning at least part-time to the office, food retail is, once again, in competition with restaurants and bars. Home delivery is also reported to have demand at 25% above pre-coronavirus levels. Furthermore, with a rising cost due to labour and supply chain challenges, food retailers’ options to resort to deep discounts to lure shoppers back are limited.

    Whilst for many retailers the January figures are very encouraging, we expect 2022 to continue to be a challenging environment for retail operations and commercial teams and their customers themselves. 

    According to IGD, customer confidence has reached an all time low, reaching a score of -14 in January. By comparison, this is even worse than the figure of just -10 in September 2019 against fear of a no-deal Brexit.

    Customers are faced with the prospect of rising energy bills as the price cap falls in the spring, and are already experiencing food price inflation and expect further rises. 

    Retailers are also struggling to prioritize their investment focus. On the one hand, they are seeking to pass on as little price inflation as possible to a sensitive consumer base. Yet, on the other hand, changing shopping habits continue to encourage investments into seamless shopping experiences, fast delivery and personalisation.

    Against a backdrop of fragile consumer confidence and footfall remaining below pre-pandemic levels, we expect to see significant investment into online, digital transformation and automation in the year to come to fund both competitive prices and sustained digital investment, in order to retain customer loyalty and spend.