“Extraordinary” levels of discounting tempted more shoppers online to buy in October, new figures from the British Retail Consortium suggest.
Online sales of non-food products grew by 5.1% during the month, according to the BRC-KPMG Retail Sales Monitor for October 2019. That’s the strongest growth since February, and ahead of the longer-term trends over three months (2.5%) and 12 months (+3.6%). But it’s behind the growth of 7.6% recorded in the same month last year. At the same time, 31.6% of non-food retail sales took place online during the month – up from 29.8% a year earlier.
Nonetheless, most retail sales still take place in stores, and overall sales – across all retail channels – grew by 0.6% in total (+1.3% October 2018). That’s the best performance recorded by the BRC since April, and above both the three month (-0.3%) and 12-month (+0.1%) trends. Like-for-like (LFL) sales – which strip out the effect of store, and business, openings and closures – were up by 0.1%. That’s also ahead of the three month (-0.8%) and 12-month (-0.4%) trends.
“Retailers embarked on an extraordinary period of discounting this October as they tried to entice shoppers into making purchases,” said Helen Dickinson, chief executive of the BRC. “Fashion shops were particularly active, helping non-food return to growth for the first time since July. Unfortunately, the longer-term trend remains bleak, with the 12-month average sales growth falling to a new low of just 0.1%.
"Nonetheless, the General Election offers politicians of all parties an opportunity to protect local retail jobs, local shopping locations and the local communities they support. MPs should build on the recent Treasury Select Committee Report and commit to reforming the broken business rates system. The first step would be to scrap the so-called downwards transition, which takes £1.3bn from retailers and redistributes most of it to other industries. This in turn holds back retailers’ investment in their physical and digital offerings, and investment in the three million dedicated people who work in the industry.”
Paul Martin, UK head of retail at KPMG, said: “Growth of 0.1% like-for-like in October would normally be little cause for celebration, but after several disappointing months any tiny hints of growth are most welcome. Retailers have clearly been peddling hard to win over disengaged shoppers, especially given continued Brexit uncertainty.
“Aggressive promotion to move stock has seemingly benefited fashion sales, both on the high street and online. However the jury’s still out on whether that progress with benefit the retailer’s bottom line.
“Online sales have returned closer to normality, with a 5.1% uptick in October, but growth online remains muted. Fierce focus will be placed on the upcoming Black Friday and Cyber Monday events to kick things into better shape.
“As trading updates from key retailers make painfully clear, the line between sales growth and profitability is wafer-thin. Increased costs - in some cases including further stockpiling in anticipation of Brexit – will impact margins. It is clear that with an ongoing lack of consumer confidence there is little room to create consumer demand with slashed prices these days.”
Over the three months to October, food sales grew by 0.5% LFL and by 1.6% in total, in line with 12 month total average growth of 1.7%. But non-food sales fell by 1.9% LFL and by 1.8% in total – below the 12-month average decline (-1.1%) over that three month period, with October standing out as a month in which non-food sales grew.
Susan Barratt, chief executive of grocery analyst the IGD, said: “October food and grocery sales weakened versus September. However, with the impact of seasonal timings starting to play a role, this is likely to be only a short-term effect.”
She said early November should see strong trading through Hallowe’en, Bonfire Night and the Rugby World Cup final.
“Shoppers’ financial confidence has remained subdued surrounding the uncertainty of how Brexit will impact their food and grocery shopping,” said Barratt. “Despite this, they were looking forward to Halloween. Indeed, one in four said they intended to buy more this Halloween compared to previous years, with 43% buying or expecting to buy products on impulse.”
Our view: These figures suggest it’s likely that retailers have had to discount in order to clear stock at a period of Brexit uncertainty, but there are clear lessons from the last year for how discounting in the run up to Christmas can undermine profitability. Bonmarché was one retailer that had to discount further than expected in order to clear stock levels. It has now gone into administration. Fashion retailer Quiz reported full-year profits down by 97% as sales grew behind expectations.
So far, Brexit uncertainty has persisted for more than three years, and there’s no guarantee it will be over soon. Added to that, the rise of concern for the environment means that shoppers have other, ethical, reasons for restricting their spending. Retailers may simply find that shoppers are buying less stuff – and the time to start adjusting to that may be now.