In a surprising turn of events, retail sales in the UK experienced a drop during a crucial shopping period in December. According to the Office for National Statistics, the volume of retail sales decreased by 1% compared to the previous month. This decline comes on the heels of a 0.5% drop in November, highlighting the challenging conditions faced by the retail industry.
One notable aspect of the decline is that sales volumes in December were 1.7% lower than their pre-coronavirus levels in February 2020. This decrease was particularly pronounced in non-food stores, where sales volumes fell by 2.1% over the month. Retailers have indicated that consumers are cutting back on spending due to rising prices and concerns about affordability.
However, there is a glimmer of hope for physical store sales, as the proportion of online sales decreased slightly from 25.9% in November to 25.4% in December. Anecdotal evidence suggests that strikes by Royal Mail may have contributed to this trend, as more customers opted to shop in physical stores.
Taking a closer look at the figures, the value of sales also declined by 1.2% despite double-digit inflation. In comparison to the previous year, sales volume in December fell by 5.8%, but the value increased by 3.8%. However, this growth was outpaced by inflation.
Non-food stores, including department stores, clothing stores, household stores, and other non-food retailers, saw a decrease of 2.1% in sales volumes in December. Retailers have cited increased prices and affordability concerns as major factors contributing to consumers cutting back on spending.
A research conducted by the ONS in early to mid-December revealed that 60% of adults planned to reduce their Christmas spending in 2022 compared to the previous year. Among the most common strategies were buying fewer presents (79%) and purchasing less expensive gifts (73%).
The impact of this reduction in consumer spending was evident in the sales volume of department stores, which experienced a 3.1% decline in December following a 2.1% increase in November. Retailers attributed the November increase to extended Black Friday sales.
Despite the overall decline in retail sales, clothing stores saw a 1% increase in sales volumes in December. However, analysts caution against interpreting this as a significant boost in retailer profits. Instead, they suggest that the growth in clothing sales is likely driven by increased promotional activity to manage stock levels.
Online sales also experienced a decline in volume. Year-on-year, online sales decreased by 8.9%, and they dropped by 2.9% compared to the previous month. Department store e-sales fell by 2.6% year-on-year and 0.2% month-on-month, while textile, clothing, and footwear stores saw respective declines of 2.6% and 0.2%.
Analysts predict that the December figures indicate more challenging times ahead for the retail industry. Cande Cooper, UK retail consulting lead at Deloitte, warns that the outlook for the next 12 months remains difficult for both consumers and retailers. Inflation, though no longer at its peak, will continue to impact retail sales value growth and potentially negatively affect demand. Consumers are expected to adopt recessionary behaviors in 2023, such as trading down, shopping at cheaper stores, repairing items instead of buying new ones, and reducing non-essential purchases.
Retailers now face the challenge of managing costs while simultaneously trying to increase revenues in an uncertain environment. Those who can offer good value, innovative products, and quality customer experiences are more likely to succeed. Additionally, personalized and dynamic consumer loyalty schemes will play a role in attracting and retaining budget-conscious shoppers.
Useful links:
1. Retail Gazette
2. Retail Week
