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By Ralph Robinson, Head of Retail & Consumer Markets, BJSS
Sadly, it’s a clear downward trend for UK retail so far this year. Despite a strong start in January, February saw volume growth decline by 0.5% month-on month and the latest March figures show yet another contraction, with volumes at 1.4% below February. Sales value is down by 0.2% month-on-month, but up a staggering 10.2% year-on-year. Especially against the backdrop of 6.2% year-on-year consumer price inflation, these results represent the worst of both worlds for consumers and retailers alike. Consumers are spending more, but due to higher prices rather than higher demand.
Whilst retailers would typically welcome double digit year-on-year value growth, when contrasted with the mere 0.9% volume growth over the same period, it’s clear that consumers are getting a worse deal and retailers know this makes for an unsustainable long-term growth curve. In fact, consumer confidence is at its lowest level since July 2008 according to GfK, seemingly due to the persistent, long-term, cumulative uncertainty from Brexit, Coronavirus, and now Ukraine.
Online pure players, especially in non-food, are feeling the pinch worse than those with a store-only or hybrid model, with online sales value down 6% month-on-month, well below the industry trend, which is relatively flat at -0.2%. For online retailers whose sales rocketed during this period last year when many physical stores were still closed, the -21.8% year-on-year decline will be the challenging figure in board rooms, as businesses evaluate how much pandemic spending behaviour will stick now stores are open and masks are no longer compulsory. In more positive news, however, online fashion and household goods stores have outperformed the general trend, with positive month-on-month growth and a smaller decline than the average year-on-year.
Rising costs, high consumer expectations and low confidence represent a triple threat to retailers’ profitability. Labour and cost price inflation are putting pressure on the bottom line, customers continue to expect better, more digitally integrated shopping experiences yet increasingly desire lower prices as the cost of living crisis grows. Ultimately, consumers want more for less, from retailers who are already feeling the pinch of rising labour costs and supply chain uncertainty.
The core retail sectors that saw a boom during the peak of coronavirus, such as food stores and online retail, experienced a month-on-month decline in March, but there is a glimmer of hope for non-food stores, which actually saw 0.5% volume growth month-on-month. This is driven primarily by sustained demand for DIY and furniture and lighting stores, as Britons continue to invest in their homes this spring. The fashion industry, whilst still in marginal month-on-month decline, still outperformed the industry average, which will be welcome news to a fashion industry suffering from a lack of investment in holiday wardrobes after years of pandemic staycations. As the weather improves and more consumers venture abroad this spring and summer, we’d expect to see fashion results improve further still.