No end to bad news as UK retail sales weaken in September
There was bad news for UK retailers on Friday as the Office for National Statistics reported what the retail sector already knew – sales during September were pretty poor.
Retail sales volumes fell by 1.4% last month compared to August, not a huge figure in itself but it actually put sales 1.3% below pre-pandemic February 2020 levels. And volumes were down a hefty 6.9% year on year.
Retailers continued to mention the effect of rising prices and the cost of living on sales volumes, but the figures were also affected by the public holiday for the funeral of the Queen, when many stores closed. Some also closed on the day the Queen died while many consumers weren't necessarily in a shopping mood for at least a few days after the announcement.
The ONS said non-food stores sales volumes fell by 0.6% in September and were 2.7% below February 2020. On the plus side, clothing stores’ sales volumes rose 0.1%, mainly because of growth in footwear stores. Other non-food stores, such as jewellers, reported a monthly fall 0.7%, while department stores fell 0.6%.
Meanwhile non-store retailing (mainly online retailers) volumes dropped 3%. But despite concerns in recent periods for many e-tailers that benefited from lockdowns, this figure shows how far e-tail has come and was 18% above February 2020.
The value of sales last month dropped 1.4% against August and 3.8% on the year — both of them weak figures given that inflation is running close to 10% so values would have needed to rise much more strongly just to stand still.
TOUGH TIMES AHEAD?
The report came out on the day that GfK’s latest consumer confidence report also delivered bleak news with shopper sentiment weak. And it was just a day after prime minister Liz Truss resigned. The shortest PM tenure in British history came after a mini-budget she’d signed off was very badly received.
It led to a number of negative events such as the pound sterling’s value sliding, the cost of government borrowing rising and a need to cut government spending to fill a looming black hole.
And while sterling had recovered slightly on Thursday on news of Liz Truss’s resignation, the retail sales figures on Friday sent it sliding again.
The big questions are: just how much did the death of the Queen impact stores and consumers? Have they returned to more normal activity this month? And has the political and economic instability sparked by the mini-budget dealt a further, lasting blow that could derail the festive shopping season?
Those questions can’t yet be answered. But despite seeing some opportunities in the months ahead, analysts are in broad agreement about the challenges online and offline stores face.
McKinsey & Co’s Kevin Bright said: “September’s retail drop in sales was compounded by inflation and the bank holiday. Consumers are acting cautiously, as they are more pessimistic about the economic outlook now than during Covid-19 lockdowns.
“While food price inflation has garnered much of the attention of late, non-food sales volumes also declined. This is consistent with our research where the majority (58%) of UK consumers are planning to do less holiday shopping this year. And 8% plan on doing no shopping at all.
“With household budgets tightening, buy now, pay later is on the rise – 19% of consumers intend to use more buy now, pay later services in the coming months.”
Silvia Rindone, EY UK&I Retail Lead, added: “Non-store retail continued its downward trajectory. However, as we enter the ‘golden quarter’, and with Black Friday a few weeks away, this may change. Nearly two fifths (41%) of shoppers are planning on doing most of their deal hunting online this year. The news will be welcome to many pureplay online retailers, particularly fashion retailers, who have been experiencing high commodity prices, rising delivery costs and product returns as well as issues with excess stock.
“The biggest challenges for retailers this Christmas will be pricing, inventory and how to deal with falling demand. The latest EY ITEM Club Autumn Forecast expects the UK economy to be in recession until the middle of 2023 so against this backdrop of increased uncertainty, consumers are likely to delay spending as late as possible to help manage their finances.
“Many retailers have already started heavy discounting to tempt shoppers to bring forward their Christmas spending. As consumers become more cautious about what they spend their money on, retailers and brands will need to ensure they plan and position their offers this year for small, more intimate events and more thoughtful gifting which focuses on usefulness rather than indulgence.”
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