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UK retail sales growth fell back in July as damp weather and persistent inflation hit shopper activity, according to the monthly BRC-KPMG retail sales monitor.
Total UK retail sales increased by 1.5% in July, which was below the three month average growth of 3.5% and the 12-month average growth of 3.9%.
UK Like-for-like retail sales increased by 1.8% in July, against a growth of 1.6% in July 2022. Again, this was below the 3-month average growth of 3.3% and the 12-month average growth of 3.6%.
Food sales were up 8.4% on a total basis and 8.7% on a like-for-like basis over the three months to July, which was up on the 12-month total average growth of 7.8%.
However, non-food sales decreased 0.5% on a total basis and 0.8% on a like-for-like basis over the three-months to July and was in decline during the month.
Over the three months to July, in-store non-food sales increased 1.2% on a total basis, while online non-food sales decreased by 6.9% in July.
BRC CEO Helen Dickinson commented: “The slowing pace of retail price inflation fed through into slower sales this July. Spend was further depressed by the damp weather, which did no favours to sales of clothing, and other seasonal goods. Online spending was down again year on year as the post covid trend back to stores continued, leading to the lowest proportion of non-food sales online since the pandemic began.
“While consumer confidence is generally improving, it remains below longer term levels. And with last week’s rise in interest rates pushing mortgage rates up ever higher, the Government must get a handle on the economy, offering a solution to languishing GDP growth in a way that supports both households and businesses. Only by creating the economic conditions for future growth, will we see a meaningful improvement in the outlook.”
Paul Martin, UK head of retail at KPMG, added: “As the storm clouds came out, shoppers retreated, with like for like sales growth a dismal 1.5% up in July. Jewellery, food and drink and items for the home were the best sellers on the high street, whilst the wet weather meant no need to restock summer wardrobes, with all categories of clothing falling into negative sales territory, in what is usually a busy month for clothing retailers. Online sales continued to slide, falling nearly 7% year on year, with just a handful of categories such as furniture, health and beauty performing well.
“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. UK consumers have been hugely resilient throughout the cost-of-living crisis, but stubbornly high inflation coupled with rapidly rising interest rates will test their ability and willingness to keep on spending for the rest of this year.
“Both consumers and retailers are finding that they are having to get used to doing more with less as conditions remain incredibly challenging.”
Speaking on food and drink, IGD CEO Sarah Bradbury commented: “Food and drink sales continued to grow in July, although the rate of growth was the lowest since January. Sales growth was driven by inflation as volumes remained in negative territory, in part due to the unseasonably wet weather, especially compared to last July’s heatwave.
“Although IGD’s Shopper Confidence Index increased for the fourth month running, confidence remains low… Furthermore, fewer shoppers are concerned about food price rises with 68% expecting them to get more expensive in the next 12 months compared to 89% last July.”
Morning update
Consumer card spending growth fell back to 4% year-on-year in July – well below the inflation rate of 7.3% and June’s growth of 5.4%.
According to data from Barclaycard, spending on supermarkets rose considerably less in July (5.2%) than in June (9.8%), as the rate of food price inflation continued to slow after peaking in March.
However, concern around rising food prices remains high at 91%, leading seven 70% of shoppers to look for ways to reduce the cost of their weekly shop – the highest percentage so far this year.
Of these value-seeking consumers, 13% say they are having to remove some items at the checkout to avoid going over budget. To help save money, more than a third (35%) are buying items in bulk because they cost less in the long-term, and four in 10 (41%) are shopping at multiple supermarkets to source a range of deals.
Concerns around food prices and the rising cost of living are also impacting economic confidence as just one-in-five (21%) report feeling confident in the strength of the UK economy, down two% month-on-month in July.
Meanwhile, “shrinkflation” continues to impact grocery shoppers. A slightly higher proportion of consumers had noticed examples of “shrinkflation” in July (73%) compared to June (70%), with chocolate (56%), crisps (49%) and packets of biscuits (46%) remaining the products most frequently cited as being impacted by this growing trend.
Spending on non-essential items grew 5.6% year-on-year in July, with the hospitality & leisure sector enjoying a boost as Brits made the most of the summer. Bars, pubs & clubs saw growth of 7.6%, while restaurants, though still in decline, improved considerably (-2.5%) compared to June (-8.2%).
The entertainment sector was a particular bright spot, seeing a significant boost of 15.8% year-on-year.
Travel spending also continued to perform well, with travel agents and airlines both seeing noticeable uplifts (7.8% and 39.1% respectively), as holidaymakers made plans for the rest of the year.
Despite positive growth in June, clothing retailers were hampered by the unseasonal weather in July, and so fell back into decline (-3.1%).
Esme Harwood, Director at Barclays, said: “While July’s weather was a wash-out for clothing retailers, it was a ray of sunshine for takeaways and streaming services, which performed better than expected. Entertainment also enjoyed a huge boost, largely thanks to pre-sales for Taylor Swift’s and Foo Fighters’ upcoming stadium tours.
“With value-for-money still a major concern at the supermarket, eagle-eyed consumers are also spotting signs of “drinkflation” – “shrinkflation” on alcoholic drinks. This could be due to manufacturers making changes to their products ahead of the recent changes to alcohol duty, which mean that drinks are now taxed according to strength rather than type.”
Abbas Khan, UK Economist at Barclays, said: “Over the first half of 2023, high inflation rates have weighed on real household disposable incomes and constrained consumption. On the bright side, this headwind is expected to abate over H2 as inflation in essential categories such as energy and food is set to ease.
“However, offsetting this, more households are set to experience higher mortgage costs as they refix onto higher rates. Accordingly, while we do not expect a consumer recession in the coming quarters, growth is likely to be meagre.”
On the markets this morning, the FTSE 100 is down another 0.2% to 7,542.6pts.
Risers include Kerry Group, up 1.7% to €90.26, Greggs, up 1.5% to 2,570.4p and Pets at Home, up 1.2% to 370.4p.
Fallers include Just Eat Takeaway.com, down 2.3% to 1,265p, Nichols, down 1.6% to 1,004p and DS Smith, down 1.5% to 300.8p.
Yesterday in the City
The FTSE 100 opened the week edging back0.1% to 7,554.5pts.
Fallers included Bakkavor, down 4.3% to 100.5p, Naked Wines, down 3.7% to 70.3p, Just Eat Takeaway.com, down 2.3% to 1,295p, B&M European Value Retail, down 2% to 533.6p, Marks & Spencer, down 1.6% to 203.1p, McBride, down 1.5% to 43.3p and Ocado, down 1.2% to 852.8p.
The day’s risers included Hilton Food Group, up 3.1% to 690p, Greencore, up 2.5% to 91.6p, Premier Foods, up 2.1% to 125p, C&C Group, up 1.6% to 142p, SSP Group, up 0.8% to 242.4p, Reckitt Benckiser, up 0.7% to 5,660p and Domino’s Pizza Group, up 0.6% to 404.4p.
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