Record Low Retail Sales: Shoppers Apathy Amid Brexit Uncertainty

Record Low Retails Sales: Shoppers Apathy Amid Brexit Uncertainty

As per the recent industry data, retail sales growth in the UK in July 2019 has narrowed to the lowest level on record. Total sales during the month under consideration recorded an increase of just 0.3% on a Year-on-Year basis, despite favourable weather conditions during the month.  According to British Retail Consortium (BRC), an independent lobby body, the growth in retail for July 2019 is the lowest since recordkeeping was initiated in the year 1995.

Total sales in the month under review rose by 0.3% against an increase of 1.6% recorded in the same period of the corresponding previous year. However, according to the BRC, the growth is higher than the three months average of negative (1.3%), but lower than the 12-months average of 0.5%, though it is the lowest 12-months average on record.

On a like-for-like basis, retail sales in Britain improved by just 0.1% YoY, against 0.5% of growth recorded in July 2018. However, on a like-for-like basis, July’s performance was better than the 3-month and 12-month average of negative 1.2% and negative 0.2% respectively.

In the three months ended July 2019, the in-store sales of Non-Food products plunged by 4.1% in total terms and 4.0% on a like-for-like basis. This is considerably higher against the 12-month total average decrease of 2.6%. Food sales in the same period narrowed by 1% on a Like-for-Like basis and 0.3% in total terms. This was considerably below the 12-months total average growth of 1.8% and a record three-month lowest average since December 2014, excluding Ester sales deterioration.

Online sales of Non-Food products during July 2019, recorded a growth of 3.6% on a YoY basis, against the growth of 7.5% recorded in July 2018. However, reported growth in July 2019 was marginally above the 3-month average growth of 3.1% and 100bps below the 12-month average growth of 4.7% respectively. Also, the online penetration of Non-Food items in July 2019 surged to 29.8% from 28.4% recorded in the year-ago period.

Helen Dickinson OBE, Chief Executive | BRC – Statement

In the July retail sales report, Helen Dickinson, the OBE Chief Executive of BRC, stated that Uncertainties related to the Brexit and slow real wage growth was dragging spending, which led to the lowest 12-month average total sales growth falling to just 0.5%. The glorious sunshine and the finals of the World Cup in the previous year drove decent consumer demand over the summer. Retail sales declined in both June and July this year to the lowest levels against corresponding prior -year periods.

Languishing retail sales is taking its toll on many high street retailers who are struggling with surging input costs and higher business rates. Indeed, a proper strategy is required to come out of this distress.

He also added that the government should fix future business rates and, they should reform this broken tax system.

Paul Martin, Retail Head, UK | KPMG– Statement

Paul Martin, Retail Head of KPMG, UK, said that despite a record temperature in July this year, retail sales were considerably far from record-breaking levels clocking just 0.3% growth. However, any growth is welcome, post two consecutive months of decline. He added that, retailers need much more than just sunshine to return to the growth cycle. Given favorable weather conditions it is really surprising that retailers have failed to in cash on it. However, its online retailers who have benefited once again and recorded a growth of 3.7% on a YoY basis, although it was considerably below the 7.5% of growth reported by online retailers in the year-ago period.

Also, one segment which is drawing attention is grocery and this segment has benefited historically from the good weather conditions, but this time it also reported depressing results, which is a cause of concern.

With prolonged Brexit related uncertainties, consumer confidence has been subdued with the shoppers holding back.

He also added that “pressure continues to build on brick and mortar retailers and online retailers, as costs continue to increase amid the continuous rise in demand. The question is, who will better manage this situation?”

In a separate data released by Barclaycard, which present records of nearly half of the nation’s debit card and credit card transactions, it was revealed that total sales in the month of July for department stores contracted by nearly 3.9% against the same period of the prior year.

The survey conducted by Barclaycard also revealed that one out of the three shoppers had held off the purchase of big-ticket items and is waiting for a stable economic condition.

It also revealed that one out of four people is not certain about job security post-Brexit; this is the highest such ratio in more than two years.

Meanwhile, consumer confidence also slumped in July to 29%, with people looking for positive signals from the economy, declining considerably from 34% in June 2019.

However, the increased consumer spending on Cinema in July 2019, helped substantially to bring retail sales back on the growth trajectory. Consumer spending on cinema was 1.7 per cent higher than July 2018. This was mainly because of releases like Toy Story 4 and The Lion King, as per the Barclaycard survey. Sales of movies in July 2019 was approximately 14.8 per cent higher than July 2018. Also, restaurants and pubs recorded a growth of 10.1% and 5.6% on a YoY basis, respectively.

However, overall growth in retail sales resulted in inflation much below the threshold of 2%, which reflects in real terms, that spending was considerably below the same period in the prior year.

Esme Harwood, Director | Barclaycard – Statement

Esme Harwood, Director, Barclaycard in a statement said that spending continued to be muted in the past couple of months, mainly on account of growing Brexit related uncertainties, which has heightened substantially in the recent times causing many shoppers to hold back their spending on big-ticket items.

However, good news for retailers is that food inflation in the month of July this year was marginally below the 1.8% of June 2019, and fresh food inflation eased to 1.2% in the same month from 1.4% recorded in the month-ago period. Meanwhile, the July’s headline inflation index was broadly reduced on account of the steep decline in the Non-Food items. This also indicates that lower confidence has led consumers to slashing out purchases on discretionary items, despite retailers offering attractive discounts to attract shoppers. Food inflation also eased in July partially on account of a fall in global food prices.

Mike Watkins, Head of Retail | Nielsen – Statement

Mike Watkins, Head of Retail, Nielsen stated that with present economic uncertainties hovering on the UK, it’s really good news for the shoppers that there was no inflationary pressure in the month of July. He also added that food inflation and non-food inflation would remain stable in the remaining months of 2019.

The bottom line is retail sales could remain under pressure in the remaining months of 2019. Since, Boris Johnson took charge as new British Prime Minister, the fear of a no-deal Brexit has ratcheted up, and he is trying all possible means to take Britain out of European Union before October 31, 2019. But clearly, a slowdown in retail sales is bad for the UK’s economic health, mainly because, the retail was the only sector which performed well since the 2016 Brexit referendum.

The recent developments in the UK clearly pointing towards a no-deal Brexit situation, despite the warning given by some of the top-notch economists and market analysts that a no-deal withdrawal of the UK could drag it into a recession. Recently, Mark Carney, the Governor of the Bank of England (BOE) in the latest Inflation report commented that as sterling is depreciating considerably against the other major currencies, this could force BOE to increase interest rates in order to provide support to sterling. Plunging pound is also a significant risk, which the retailers are witnessing as it is going to have a material impact on their bottom line and could increase their import costs as well.