Brexit uncertainty and the upcoming pre-Christmas peak trading season have combined to lift retailers’ stock levels to record highs, a new report suggests.
Retailers have stockpiled as never before in the light of a threatened no-deal exit from the European Union on October 31, according to the latest monthly CBI Distributive Trends Survey. The no-deal exit – which remained a theoretical threat until the EU today granted Prime Minister Boris Johnson’s request for an extension – had been set to fall just as peak trading starts to ramp up ahead of Black Friday and Cyber Monday at the end of November. Retailers already stockpile goods to sell ahead of Christmas, but the usual stockpiling appears to have been greater than ever before thanks to uncertainty around Brexit. The so-called ’flextension’ agreed today means the UK could stay in the EU until January 31 2020, although this could be ended sooner – at the end of November or December – should Parliament approve a deal in the meantime.
The CBI report suggests October saw the highest spike in retail stock levels in relation to expected sales since its records began in 1983. That followed another large peak in August. The CBI says the spikes were well ahead of anything seen ahead of the previous March 29 Brexit deadline.
Rain Newton-Smith, chief economist at the CBI, said: “Retailers have had to contend with the looming Brexit deadline, which has partly driven a record spike in stock. The timing could not be worse: the run-up to Christmas is a crucial time of year for the retail sector.”
The deadline comes at a time when retail sales have fallen for six months in a row, including October (-10%), according to the CBI figures. Retailers, however, expect sales volumes to be flat (+1%) next month. Orders placed with suppliers fell in the year to October (-4%) at a slower pace than in September (-9%), while orders are expected to fall (-22%) next month.
But internet sales improved in October (+49%), compared to September (+33%) as online sales stabilised, the CBI said. Online sales are expected to continue to grow in November (+51%).
“Retailers have now enduring six months of falling sales, the longest period of decline since the financial crisis,” said Newton-Smith. “The sector is struggling with ongoing digital disruption, layered on top of cost pressures from a weak pound and the cumulative burden of an outdated business rates regime.
Wholesale transactions (-10%) fell in the year to October following growth in the previous month of September (+21%). Growth in orders (+7%) eased from September (+21%).
Earlier this month, business advisor Duff & Phelps warned that stockpiling ahead of Brexit meant that working capital was tied up in stock, putting a strain on cashflow as a result.
Commenting on today’s Brexit extension, the British Retail Consortium (BRC) said that the situation could not continue indefinitely.
Helen Dickinson, BRC chief executive, said: “For the third time, the UK has required an extension to avoid a chaotic no-deal Brexit. While we have been clear that a no deal Brexit would be disruptive for both consumers and retailers, each repeating cycle of parliamentary impasse and extension is costing retailers hundreds of millions that would be better spent improving customer experience and reducing prices.
“The UK cannot teeter on the edge of Brexit indefinitely. Brexit uncertainty continues to take its toll on retail businesses and the three millions retail jobs that exist today. This extension does not offer time for complacency and it is essential that Parliament commits to resolving Brexit once and for all.”