After a tough Christmas period, retailers started 2018 facing another difficult month. The latest report from the Office for National Statistics (ONS) confirms a trend highlighted by other studies: UK households are spending less on food as prices rise.
Although the sales volume in January has shown a small increase of 0.1%, it still registered a drop in almost all main sectors. Compared to the same period last year, sales volume increased by 1.6%, a result driven by non-food stores – the only sector to register a positive result.
Retailers have noticed an increased interest in health and wellbeing, probably due to New Year’s resolutions. Alongside games and toys, sports equipment represents the biggest increase in sales at 10.9%. However, this still indicates a slowdown to the total year-on-year growth when compared to the 2.4% increase seen in January 2017.
Rhian Murphy, Office for National Statistics Senior Statistician said:
“Sporting equipment sales have grown more than usual in January 2018, following an increased uptake for gym wear”. This, he added, “was offset by falling food sales when compared with the same month a year earlier”.
For the sixth consecutive month, sales volume in food stores registered a decline. The ONS believes the 0.9% drop was caused by the continued rise in food prices, which contributed to the slowdown in all retail.
“Retail sales growth was broadly flat at the beginning of the New Year with the longer-term picture showing a continued slowdown in the sector. This can partly be attributed to a background of generally rising prices”, said Murphy.
Earlier this month Sky News reported that, according to a leaked government paper, retailers can expect to suffer a 20% increase in prices after Brexit. This increase will likely be passed to consumers, further affecting retail growth.
Online sales keep growth trend, albeit slower
According to the ONS report, online sales continue to see positive results, with a year-on-year increase of 9.1%. However, this shows a slowdown – by comparison, January 2017 registered a 19.2% increase. Non-food stores was the largest growth in this sector, 12.8%, mostly driven by household goods stores.
Seasonally adjusted, the average weekly spending in January decreased to £1,175.4 million from the £1,209.6 million registered in December 2017. The growth trend in online retail remains, but at a much slower pace.
Optimism not aligned with consumer views
The Bank of England expects an improvement throughout 2018, with inflation falling and wage growth increasing, but consumers clearly don’t share the same optimism.
A survey from Natwest released last week revealed that consumer confidence is weak, with almost a third of UK households expecting their personal finances to weaken over the next year. According to Visa, household spending fell by 1.2% in January compared with 12 months ago. In addition to the uncertainty surrounding Brexit, this reflects the impact of inflation growth and wages stagnation.
This lack of consumer confidence is likely to be replicated in the Private Equity world, as investors steer clear of retail assets. However, as online sales remain strong, tech assets in this sector are more likely to provide returns. Market analysis and due diligence is vital at an early stage to ensure any retail asset has robust growth strategies in place.