Retail sales take a hit as summer rain pours cold water on demand

Weekly Market Snapshot

• The UK BRC retail sales monitor for July showed a growth of 1.8%, falling short of the expected 3.0%.

Behind the headlines: What happened?

Retail sales in the United Kingdom climbed 1.8% on a like-for-like basis in July 2023 compared to the previous year. However, this increase hit a speed bump, slowing down from the impressive 4.2% surge seen in June. The heavy rain and soaring inflation poured cold water on retail activity during this period, resulting in the lowest reading in nine months.

BRC Retail Sales Monitor YoY

The Inside Scoop:

Clothing and footwear retailers experienced a sales slump, playing a part in the 0.5% decline in overall non-food sales during the three months leading up to July. Meanwhile, food and drinks sales hit the brakes, showing their slowest pace of growth since the winter. Online non-food sales took a nosedive of 6.9% in July 2023, marking a more significant drop compared to the 3.9% dip observed in July 2022.

Connecting the Dots:

The BRC-KPMG Retail Sales Monitor measures changes in the actual value of retail sales from a selection of retailers. The retail price inflation’s snail-paced progress had a ripple effect on sales in July. Adding to the gloom, the damp weather had an effect on consumer spending, particularly affecting the sales of clothing and other seasonal goods.

 “We are starting to see a big rise in the number of promotions that retailers are putting in place in order to get shoppers through the door, as they battle to keep market share.  Price-conscious consumers are shopping more carefully, more aware of where bargains can be found and what they are getting for their money – which is biting hard into retail margins and profitability. Paul Martin, UK Head of Retail KPMG highlighted.

The figures for the Retail Sales Monitor are reported both in ‘total’ and on a ‘like-for-like’ basis. The ‘like-for-like’ basis usually provides a more accurate guide to general spending patterns. From the recent data, both consumers and retailers are discovering that they need to tighten their belts and make do with less, as the going gets tough. 

The Bottom Line:

Amid the cost-of-living crisis, UK consumers have displayed remarkable resilience. However, with inflation holding its ground and interest rates shooting up, the true litmus test of their spending stamina will be played out during the rest of the year. Furthermore, households are gearing up to feel the pinch of increased mortgage expenses as interests rate are expected to rise in order to reduce inflation. Nonetheless, the UK GDP report for Q2 2023 revealed that consumer expenditure increased, contributing to a 0.4% expansion of the UK economy in Q2’2023. A sustained rise in consumer expenditure could support a turnaround of the dwindling retail sales in the coming period.

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