The U.S. market has been hearing a lot about stalled consumer spending in October as retailers and brands started reporting their Q3 numbers, with some remarking that September sales reversed the trends from July and August, and the negative trends continued into October.
Stalled consumer spending appears to have spread across the pond this fall as the British Retail Consortium (BRC) released its October sales report for UK consumer sales for the four-week period October 1 through October 28.
The BRC reported that total UK retail sales increased 2.5 percent in October, on top of just 1.6 percent growth in October 2022. The number was below the three-month average growth of 3.1 percent and the 12-month average growth of 4.2 percent, as reported by the BRC.
Given that both the October SPI (BRC) and September CPI (ONS) showed inflation running at higher-than-normal levels, the reported rise in sales masked a likely drop in volume once inflation is accounted for.
“Retail sales growth slowed as high mortgage and rental costs further shook consumer confidence,” noted Helen Dickinson OBE, chief executive of the BRC. “Many households are also delaying their Christmas spending in the hopes they can grab a bargain in the upcoming Black Friday sales. The cost-of-living squeeze meant more was spent on lower-price indulgences, such as beauty products—the so-called ‘Lipstick Effect.’ Meanwhile, the arrival of some colder weather helped to boost fashion sales, particularly for outdoor wear.
“Retailers continue to invest in lowering prices and streamlining their operations, part of their commitment to delivering an affordable Christmas for their customers. But this is put at risk by the £470m-per-year rise in business rates facing retailers next year. The Chancellor must freeze rates in the upcoming Autumn Statement to prevent extra cost pressure, pushing up prices for struggling consumers.”
Non-Food sales decreased 1.0 percent on a total basis over the three-month period through October, which was said to be below the 12-month average growth of 0.6 percent in the UK. For the month of October, Non-Food sales were in decline year-on-year.
Over the three-month period through October, In-store Non-Food sales decreased 0.1 percent on a total basis year-over-year—below the 12-month average growth of 3.0 percent.
Online Non-Food sales decreased 2.5 percent in October, on top of a decline of 6.3 percent in October 2022, shallower than the 3-month decline of 2.7 percent and deeper than the 12-month decline of 2.9 percent in the market.
The proportion of Non-Food items bought online decreased to 36.5 percent of total sales in October from 36.6 percent in October 2022.
“Retail sales remained weak in October with growth of just 2.5 percent,” added Paul Martin, UK head of retail, KPMG. “Food and drink and health and beauty categories continued to drive sales, while a mild October saw consumers put off shopping trips to replenish winter wardrobes. Online sales continued to struggle, with negative sales growth recorded in every category other than health and Other Non-Food. This could herald the most competitive Black Friday period that we’ve seen in a while.
“Whilst consumers are now operating in a lower inflationary environment compared to October last year, where inflation peaked at over 11 percent, there is no doubt that the last 12 months have taken a toll on confidence and their ability to spend. Coupled with a higher interest rate environment, dwindling COVID savings and the heating coming back on, beleaguered consumers are thinking very carefully about how they spend their money. As a result, the strong demand that has kept some retailers afloat over the last 18 months is now falling away.
“Although the retail sector has done some sterling work around controlling their own cost environment, the health of the industry is at the mercy of macro demand. Retailers are facing a challenging Christmas, competing for a shrinking share of wallets, driven by promotions that will no doubt cut into already stretched margins. With spending levels expected to be much more muted this year, the run-up to Christmas could be the most challenging we’ve seen since pre-pandemic days,” concluded Martin.
