Challenging month for UK retail
March saw retail sales growth fall below inflation for the seventh time in nine months, according to new data revealed by accountancy and business advisory firm BDO LLP.
Sophie Michael, head of retail and wholesale at BDO LLP, said: “Across the board, inflation is above 10%, and for food it now stands at a staggering 18%. This is eating into consumers’ discretionary spending and is bad news for the fashion, lifestyle, and homewares sectors, as we can see in the March retail sales results.”
According to BDO’s High Street Sales Tracker, total like-for-like (LFL) sales, in-store and online combined, rose by +4.1% in March. Total in-store LFLs climbed by +6.6% in the month, from a strong base in March 2022.
However, retailers will be disappointed by weak growth in online sales, with total non-store LFLs increasing by just 2.8% from last March’s negative base of -10.8%.
March began with a positive first week, with total LFLs growing by +11.03%, before dipping in the second week to +8.30% above the same week last year, partly prompted by bad weather across much of the UK. The third week of the month, which included Mother’s Day, saw a slight rebound, with total LFLs +10.54% above the equivalent week in 2022. However, this was followed by a very disappointing final week, where sales fell by -11.67% compared to last year. While this week in 2022 included Mother’s Day, which may have contributed to the fall in LFL sales, it is still a disheartening note for retailers on which to end the month.
Sector Results
Total LFLs for the fashion sector grew by just +0.7% in March, its worst performance in over two years. In-store sales were particularly disappointing, declining -0.4% compared to the same month last year.
The lifestyle category saw the best performance of any sector in March, with total LFL growth of +9.7%, still below the rate of inflation. Consumers buying gifts across health and beauty ranges for Mother’s Day may have helped to spur some of this growth.
March brought mixed results for the homewares sector. While in-store sales growth increased by +15.3%, total LFL sales growth was just +5.4%, failing to offset a negative base in March 2022, and significantly below the rate of inflation.
Sophie continued: “The impact of inflation is really challenging for retailers, particularly in discretionary spend categories. Consumers simply have much less money to treat themselves because of increasing prices for essentials, which is therefore taking a bigger slice of their purse and reducing their spending power on discretionary spend categories such as fashion, homewares and lifestyle products. Inflation is now rising rapidly in these categories, particularly in the fashion market, which saw prices rise by 8% in the year to February, up from 6.2% in January.
“So, retailers are being squeezed on two fronts: consumer spending is falling, while they’re having to increase prices on their own products.
All this adds up to lower sales volumes for retailers.
“While the like-for-like sales may be positive, giving some hope to the retail sector, the broader picture is a negative one. Consumer confidence remains stubbornly low, many home-owners will soon come off fixed-rate mortgages onto much higher interest rates, and inflation on essentials is not easing. Against this backdrop, retailers will need to provide a highly attractive product and exceptional customer experiences, both in-store and online, to persuade consumers to part with their increasingly stretched purse, while the retailers’ own operational costs continue to rise.”