Official statistics released by the Office for National Statistics (ONS) have revealed an unexpected downturn in UK retail sales during December. The data showed a significant decrease of 3.2% compared to November, marking the largest monthly fall since January 2021 when sales were impacted by coronavirus restrictions. The decline in sales was primarily driven by non-food items, both online and in-store.
In terms of volume, December sales were 3.2% lower than November and experienced a 2.4% decrease year on year. The value of sales also fell by 3.6% compared to November, despite a slight increase of 0.6% compared to the previous year. This increase was negated when considering the impact of inflation.
Excluding car fuel, the value of sales dropped by 3.6% compared to November, but only saw a 2.3% increase year on year. However, this increase was still not enough to counter the effects of inflation. Non-food stores witnessed a decline of 3.9% following a 2.7% increase in November, which had been influenced by Black Friday promotions. Non-store retailing, mainly online sales, also experienced a decrease of 2.1% after a 1.1% drop in the previous month.
Retailers have attributed part of the decline in non-food stores to consumers purchasing gifts earlier than usual in November. Research conducted by the ONS supported this claim, revealing that 46% of adults planned to spend less on Christmas, with 39% choosing to buy earlier to spread the cost. Department stores were particularly affected, with sales volumes declining by 7.1% in December. Furthermore, stores selling watches, jewellery, and clothing saw their sales volumes decrease by 1.5%.
Online sales also witnessed a decline, with textile clothing and footwear stores experiencing a 1.6% decrease in volumes, while e-department stores saw a 2.4% drop. Analysts attribute these figures to cautious consumer spending habits, as shoppers were focused on finding the best prices and promotions.
Samantha Phillips from McKinsey highlighted that consumers were being more cautious and shopping smarter amidst challenging economic conditions. Kris Hamer from the British Retail Consortium emphasized that the decline in sales volumes in December added to a difficult year for retailers, with Black Friday sales eating into Christmas spending and rising living costs causing households to cut back on festive gifting. However, there is hope among retailers that consumer confidence and sales volumes will rebound in 2024 as inflation decreases and wages increase.
On the other hand, Oliver Vernon-Harcourt from Deloitte expressed concerns that the weakness in retail sales may persist, at least during the first half of the year. He noted that December’s results fell below retailers’ expectations, suggesting a challenging future ahead. While the first half of 2024 may remain difficult for consumers due to rising rates and economic uncertainty, the second half could see a more positive outcome with wage increases, reduced national insurance, and falling inflation positively impacting consumer spending.
Useful links:
1. Office for National Statistics – Retail Sales
2. British Retail Consortium – Retail Sales in December
