Retail sales volumes fell in July after two consecutive months of increases, according to the latest ONS (Office of National Statistics) data.
Sales are estimated to have fallen by 0.5% in July following an increase of 0.7% in June and 1.3% in May. Over the three months to July, volumes were up 1.1%, with every main sector except automotive fuel showing growth.
Industry experts attribute this in part to the long heatwave, which saw shoppers spending early on summer purchases, but avoiding hot high streets in July. Hai-Ly Nguyen, Associate Partner at McKinsey & Company said: “July’s monthly fall looks less like a collapse in demand, but more of a timing effect of the heatwave and previous promotions pulled forward into June. The heatwave suppressed high-street footfall and cooled appetite for big-ticket household purchases, including furniture. But food held up with a 0.5% rise. This was helped by the World Cup’s final week and summer gatherings.”
She said this continued consumer caution is consistent with McKinsey’s latest consumer research, but pointed to considerable variation across channels. “Online share of retail fell back to 28.3% in July, but remains structurally elevated and in categories such as apparel and beauty, where consumers increasingly use AI tools to compare and narrow choices before they buy, being visible upstream of checkout is becoming as important as in-store presence.”
Consumers are still shopping selectively
Nicholas Found, head of commercial content at Retail Economics, said the July figures indicate that customers are still shopping selectively. “Sunshine, England’s World Cup run and a calmer economic backdrop lifted the national mood in July, but that optimism translated into selective spending rather than a broad retail recovery,” he said.
“Consumers prioritised experiences, summer essentials and smaller indulgences such as beauty. Extreme heat reshaped where people spent, driving shoppers away from high streets and towards online.
He added that shoppers remain heavily discount-focused. “Promotions remain deeply embedded in shopping behaviour, showing consumers have not abandoned the value discipline built up through the cost-of-living crisis.”
Shoppers remain deals-focused
Deann Evans, Managing Director, EMEA, at Shopify, said that the data suggests that shoppers look ahead and make purchases early, again, also to secure the best deals. “Interestingly, our data also revealed consumers are already thinking about autumn fashion, perhaps in an effort to beat the rush and capitalise on the best discounts,” she said. “It is a reminder that shoppers like to look ahead and secure the best deals, which offers valuable lessons retailers can take into the coming months as peak season approaches.
“Providing competitive deals and harnessing other financial incentives such as free shipping/returns and loyalty programmes will stand merchants in good stead for returning to sales growth, alongside other key tactics such as providing a seamless shopping experience across every channel consumers buy on,” she added.
The figures suggest that retailers need to look closely at their promotional strategies. “For independent retailers, the challenge is making sure every opportunity to sell counts,” said Jacyn Heavens at point-of-sale provider Epos Now. “We saw this play out in July, when clothing retailers who pulled their promotions forward into June ended up with weaker sales in July as a result, a clear example of how timing decisions can shift demand from one month to the next rather than create it.”
Consumer confidence at two-year high
However, there is some good news. UK consumer confidence hit its highest level for two years, according to the GFK Consumer Confidence Index for August.
GFK consumer insights director Neil Bellamy said: “Consumer sentiment has continued to improve this summer with August’s headline score up three points to -14, its highest level for two years and well ahead of the -25 registered just four months ago in April.”
Commenting on this, Richard Nolan, chief operating officer at Epos Now, said: “The news that consumer confidence is at a two-year high today should be a welcome sign for retailers and small businesses alike. However, with the index still in the negative territory, businesses shouldn’t mistake improving sentiment for a complete turnaround in sales.
“For independent retailers, the coming months could present the opportunity for this renewed confidence to be turned into sales. Consumers may be feeling more optimistic than in previous months, but they’re likely still selective. Businesses can combine the right products with competitive pricing, a smooth purchasing experience and targeted promotions to turn this growing confidence into demand.”
What the two sets of figures mean
Taken together, the two figures – from ONS and GFK – suggest that consumer optimism is recovering but isn’t yet strong enough for a full retail recovery. Consumers are feeling more positive about their personal finances and economic outlook than they were earlier in the year, but that has not yet translated into a sustained increase in discretionary spending.
While July’s dip looks more like a timing issue than a significant dent in consumer confidence, retailers will nonetheless need to remain pragmatic about the months ahead, particularly as the global political situation remains volatile and more shocks for the sector could lie ahead.
Nicholas Found said. “The second half now looks finely balanced. Energy-driven inflation has accelerated again and could quickly test household optimism. In a market where growth remains scarce, retailers need to combine sharp value perception with relevance to drive market-share gains.
He added: “The new Government’s ambition to revive Britain’s high streets is timely. But delivering it will require stronger household spending power and a cost base that gives retailers confidence to invest.”
