Retail sales grew below inflation – as shoppers spent more in-store in January, but less online than a year earlier – the latest BRC figures suggest. However, the rate of growth in-store slowed compared to last year, as did the rate of online sales decline.
Meanwhile, Barclays saw card spending rise above inflation in January as shoppers spent more on hospitality and on travel as well as increasing their retail spending.
Both the BRC and Barclays are warning of challenging months ahead for the UK economy – and for retailers’ customers.
BRC: in-store sales growth and online decline both slow
Total retail sales grew by 4.2% in January, compared to January 2022 – when they had grown by 11.9%, the latest BRC-KPMG Retail Sales Monitor, for January 2023, suggests. This year’s figure is below the average trend over three months (+5.2%) but ahead of the 12-month trend (+2.5%). It’s also below consumer price inflation (+9.2%) for the month.
Retail sales were also 3.9% up on last year on a like-for-like (LFL) basis that strips out the effect of store – and business – openings and closures. Last January, sales were 11.9% up on the previous year. This year’s figure is below the three-month trend (+4.9%) but above the 12-month average (+1.5%).
Online sales fell by 3.6% in January, compared to a year earlier, when they fallen by 24.2%. The rate of decline was higher than the three month trend (-2.4%) but below the 12-month average (-9.7%). In-store sales grew by 7.2% in the three months to January (+6.5% LFL). That’s below the 12-month average (+17.4%).
Overall, some 41.8% of UK non-food retail sales took place online in January, according to BRC estimates. That’s down from 44.6% a year earlier.
“As Christmas cheer subsided, retailers felt the January blues as sales growth slowed,” says Helen Dickinson, chief executive of the British Retail Consortium. “Many retailers discounted heavily to entice consumer spend, and while there were bargains to be had in the January sales, retailers continue to be hit by lower margins and falling volumes. Own brand ranges remain popular across food and non-food products, and big ticket items are seeing customers trade down.
“The coming months will continue to be challenging for retailers and their customers. Consumer confidence remains stubbornly low and looming rises in household bills and mortgages mean discretionary spending will remain weak. With ongoing cost pressures and labour shortages increases in sales don’t convert into increases in profits or cash. Given that backdrop, retailers can ill-afford the millions lost to the inflexibilities of the Apprenticeship Levy, so Government must urgently look to change the system so retailers can use the funds to train their workforce to better meet the needs of their businesses and the people who work in them.”
Food sales were 8% up in total (+7.9% LFL) in the three months to January. That’s above the 12-month total average growth (+3.5%).
Over the same period non-food sales grew by 2.9% (+2.5% LFL) – above the 12 month total average growth of 1.6%. In January alone, non-food sales grew compared to last year.
Paul Martin, UK head of retail at KPMG, says: “With inflation running at around 10%, sales growth for January nearly halved in comparison to December to just over 4% – sending a clear signal that consumers have started the year with a tight rein on spending as they face another period of rising costs.
“Sales of clothing continued to prop up the high street, with men’s clothes and shoes the strongest category in January, whilst purchases of energy efficient appliances remained a top purchase for consumers. The decline in sales taking place online continued this month, but is starting to level out and far from the 24% drop in sales that online retailers witnessed a year ago in January.
“As we head into a difficult time for consumers, the short-term outlook for the retail sector remains challenging. With the latest interest rate rise and utility price increases heading our way, shrinking household incomes means we will continue to see a shift in what consumers buy and where they buy from. Retailers face a tightrope as their costs rise and margins are squeezed, whilst at the same time having to ensure affordability and value for customers. Although retailers have demonstrated resilience over recent years, it is likely we will continue to see casualties both online and on the high street this year. Those retailers that have emerged from the pandemic in good shape will benefit from the current situation through market-share growth and consolidation opportunities, but all retailers are facing a tough few months of falling consumer spending in real terms.”
Susan Barratt, chief executive of grocery analyst the IGD, says: “After a slightly more buoyant December, it’s clear that volumes fell in January as shoppers put the post-festive brakes on their spending.
“However, there are glimmers of hope, with shoppers starting the year in a more upbeat mood and our Shopper Confidence Index improving to its highest level in a year. With the Prime Minister pledging to half inflation in 2023, coupled with our prediction that food inflation will slow this year, just 33% of shoppers expect food prices to get much more expensive compared to 53% last August. Furthermore, fewer food shoppers expect to increase their focus on saving money in the year ahead (35% vs 47% Oct’22). Shoppers are starting to benefit from lower petrol prices, and many are already adopting savvy shopping tactics like buying fewer products, making fewer trips, and only visiting certain supermarket aisles.”
Barclays: growing card spending
Spending on credit and debit cards rose in January (+9.7%) as spending rose on both essential items (+8.3%) and non-essentials (+10.4%), the latest figures from Barclays suggest. Retail, entertainment (+21.3%) and travel (+66.1%) all saw big increases in spending. In retail, spending grew at clothes shops (+3.6%) and department stores (+8.3%), while pharmacies, health and beauty retailers (+10.2%) saw their biggest increase since April 2022. Growth came a year on from continued Covid-19 Plan B restrictions during the Omicron wave of the virus – and in the wake of transport strikes in December, when many Christmas party bookings were postponed to January.
A parallel survey of more than 2,000 UK adults found most confident of their household finances (63%) and their ability to live within their means each month (70%), although 92% are concerned about rising household bills.
Esme Harwood, director at Barclays, says: “January saw a number of categories bounce back from last year’s Plan B restrictions thanks to Brits booking holidays, taking trips to the cinema, and snapping up bargains in the sales.
“However, while it’s encouraging that confidence in household finances saw a slight boost, it is clear that Brits will still need to find ways to manage their budgets over the coming months amid rising grocery price inflation and mounting utility bills.”
Silvia Ardagna, head of European economics research at Barclays, said: “The recent rise in UK card spending is due in large part to inflation, base effects from last year’s Plan B restrictions, and probably some statistical effects resulting from the strikes.
“Looking ahead, we think that the UK economy is likely to contract in Q1, as demand drops in real terms due to the loss in household purchasing power, as well as rising energy and mortgage bills. However, the silver lining is that the labour market remains tight, with low unemployment and elevated wage growth.”
