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Retail sales failed to bounce back last month from a drop in August as Brexit uncertainty deterred shoppers from splashing out on big ticket items.
The volume of sales was flat and the value down by 0.2% in September with a further slump in department store sales offsetting a modest rise in clothing and supermarket food purchases, according to the Office for National Statistics.
Drivers also cut back on buying fuel while online shoppers reined in their spending, possibly keeping their powder dry for Black Friday at the end of November.
But it was the dearth of spending on furniture and white goods that meant retail sales stagnated last month following a drop in the volume of goods bought in August.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. In 2018 Toys R Us, Maplin and Poundworld disappeared as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high-street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the far east, have also added to costs and hit profits.
Ruth Gregory, a UK economist at the consultancy Capital Economics, said there was little evidence of shoppers stockpiling goods ahead of a possible no-deal Brexit on 31 October.
“September’s retail sales figures were perhaps a bit of a relief given the intense Brexit uncertainty, but were hardly a picture of strength,” she said.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said there was still some momentum in consumers’ spending, which would provide some support for GDP growth while many other parts of the economy are either stagnant or in decline.
“Looking ahead, slowdowns in both employment and wage growth look set to hinder growth in spending. Nonetheless, consumers’ confidence is stable at its long-run average, CPI inflation is low, and growth in unsecured credit now has stabilised at a sustainable rate.
“Falling mortgage rates also are supporting house prices and releasing more income for households to spend on discretionary purchases.
“In addition, fiscal policy looks set to boost disposable incomes in 2020, whichever party is in power. Accordingly, we still think that households can be relied upon to keep the economy growing at close to its trend rate over the coming quarters, even if the Brexit saga carries on.”
Philipp Gutzwiller, head of retail at Lloyds Bank commercial arm, said: “The third quarter has been challenging for many retailers, particularly those focused on larger discretionary spend items such as household furnishings and white goods, where families seem to be pausing spending until the horizon is a little clearer.
Earlier this month, figures from the British Retail Consortium showed that the number of shoppers heading to UK high streets, retail parks and shopping centres has fallen by 10% in the last seven years after a fall of 1.7% in footfall last month compared with the same month last year.
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