Ipsos Retail Performance. Blog.

Malaise continues into March for UK retailers

High Street
  • The start to 2018 has been very testing for non-food UK retail.
  • The average weekly store footfall in the non-food sector against 2017 fell by -11.5% in March, dragging down the year-on-year deficit in Quarter 1 to -8.5% – the worst performance on record.
  • The decline in non-food store total sales also accelerated to 3.0% over the first 3 months of 2018 vs 2017 according to the latest figures from the BRC-KPMG Retail Sales Monitor.
  • Price deflation, however, eased slightly in March with prices in the non-food sector down -1.9% in the month, compared to -2.2% in February.

Dr Tim Denison, director of retail intelligence at Ipsos Retail Performance said:

Quarter One

“Quarter One has been one of the most challenging I can remember for non-food retailers. This has been just as difficult, if not worse, than the start of both 2008 and 2009, but for different reasons.

“Previously, it was the considerable weakening of demand and confidence that afflicted the sector in the grips of the financial crisis. This time around it is principally the relentless squeeze on gross margins and costs that are beleaguering retailers.

“For a generation now, consumers have been brought up on a diet of discounts and promotions, resulting in ever more reluctance to pay full price. Deflation has beset the non-food sector now for five years, with the devaluation of sterling, following the Brexit referendum, adding insult to injury.

“Operational costs have been difficult to contain with the need to invest in multi-channel services and structures that provide a single view of the customer, while at the same time, service the advent of the National Minimum Wage, Apprentice Levy and automatic pension enrolment. When recent rate rises are also added into the mix, the potion in the cauldron has become even more venomous.”

The month of March

“Focusing attention on March, the Beast from the East in week one of the month, followed by its junior sibling a fortnight later, contributed heavily to the demise of store footfall. Combining figures for those two weeks, footfall fell by 20.4% on last year.

“Interestingly, only furniture and home accessories avoided seeing a year-on-year decline in in-store sales in the month. Clothing and footwear recorded their worst sales performance comparison in stores since October, and for Health & Beauty, the comparison was the weakest since February 2017, however, online shopping benefitted once again. Not all was doom and gloom last month, as we did see non-food sales grow to 22.0% of total sales in March, up 0.9% on February.”

Profit Warnings

“We are now beginning to see the visceral consequences of the sustained harsh trading conditions and a focus on sales growth at the expense of profitability. Not a week has gone past recently without news of another non-food retailer announcing profit warnings or re-financing plans. The pain is being felt right across the non-food sector, from clothing to carpets, and department stores to DIY. The list of casualties’ worryingly continues to mount.

“From a sales and demand perspective, though, there are some brighter signs. Food retailers have started to pass through lower prices to consumers, and inflation has started to ease back to wage growth levels. Consumer confidence is certainly on the up, which should all help improve potential levels of discretionary spend. Nevertheless, the pain for non-food retailers remains most acute in areas of cost management and margin control, where we’re well beyond sticking plaster fixes.”

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