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December saw sharpest monthly drop in retail sales since Covid

InternetRetailing

Retail sales volumes fell by 3.2% in December 2023, the largest monthly fall since January 2021 when lockdown restrictions were in place, according to the latest figures from the Office for National Statistics (ONS).

Non-food store sales volumes fell by 3.9%, following a 2.7% increase in November when earlier Black Friday sales and wider discounting increased sales.

Additionally, non-store retailing (predominantly online retailers) sales volumes fell by 2.1% in December, following a fall of 1.1% the month before.

Heather Bovill, deputy director for surveys and economic indicators at the ONS, explained: “Department stores, clothing shops and household goods retailers reported sluggish sales too as consumers spent less on Christmas gifts, but had also purchased earlier during Black Friday promotions, to help spread the cost.  

“The longer-term picture remains subdued, with quarterly sales dipping [down by 0.9% in the three months to December], while annual sales volumes fell for the second consecutive year, to their lowest level in five years.” 

This comes as UK inflation rose unexpectedly to 4% in December – the first time the Consumer Prices Index (CPI) has increased since February 2023.

“Retailers’ optimism will be waning following the latest drop in retail sales figures. At a time of year when consumers are more willing to spend and buy gifts for loved ones, December’s figures paint a different picture. On top of the surprise rise in inflation figures on Wednesday, this will be a blow to their confidence,” commented Adam Ward, co-founder and chief executive officer at Airtime Rewards.

“Darker nights and cold bouts of weather will be playing a part in consumers’ lack of enthusiasm to hit the high streets.  Amid this ongoing challenging environment, retailers must showcase their best efforts in attracting and retaining their customer base. Introducing initiatives that are aimed at cutting costs and demonstrating customer value will be critical, and those who do so will come out on top in the new year.”

Jeremy Stern, CEO, PromoVeritas, added: “Retail is now heavily data-led. The various loyalty schemes are huge suppliers of data to marketing teams and the key way in which discounts are passed onto shoppers. However, old habits die hard. To a certain extent, shopping online just does not compare to walking the aisles.

“Many younger shoppers are also now more discerning of the quality of products. As many as one in three items are returned, representing a huge cost for e-retailers. In a store, you can feel the material, show your mates how well it fits, and easily return it or swap it.

“Now that we have the official retails figures for the Christmas period, I expect to see a fierce price matching battle as retailers look to boost growth with increasingly competitive promotions and discount schemes.”

Freddy Khalastchi, business recovery partner specialising in the retail sector at Menzies, noted: “Sluggish consumer spending and mounting costs are placing immense pressure on retailers, causing cashflow difficulties and this could lead to a potential surge in insolvency cases. Taking a proactive approach to financial management will be crucial to survival.

“Recognising the warning signs of financial distress early on is paramount. In the event of cashflow issues, vigilant monitoring of stock levels is essential. Overstocking could leave the business holding outdated or unwanted products, and negotiating to secure flexible supply agreements can help to avoid this. For businesses purchasing stock from outside the UK, hedging against exchange volatility can help to further protect margins.

“Above all, the importance of early intervention in times of difficulty cannot be overstated. Spotting signs of trouble early, being proactive in communicating with lenders and suppliers, and focusing on cashflow management can all improve the chances of navigating the coming months successfully.”


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