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Retail sales growth hits four year high

The retail sector in the UK is experiencing rapid change and this inevitably creates winners and losers.  However, many are quick to point to the bad news stories and slow to recognise the bright spots – if we believe everything the media is telling us it is all doom and gloom on the High Street.  The reality is rather different and as specialists at creating bespoke metal shop fittings and well-designed retail displays for shopfitters, retail designers and store owners, we are happy to report that recent figures show the sector is actually holding up well.  In this article we review the numbers and look at some of the issues that need to be addressed if the sector is to meet the undeniable challenges it faces.

Start of summer sees shoppers spending freely

The latest figures released by the British Retail Consortium show that retail sales increased 2.8% in May of this year on a like-for-like basis from the same month in 2017.  In May 2017 retail sales dipped by 0.4% when compared to May 2016.  So, shoppers were out in force last month and this figure represents the highest growth since January 2014.

What’s behind this very positive headline figure?   Helen Dickinson OBE, Chief-Executive at the British Retail Consortium suggested that “Better weather and the bank holiday effect led shoppers to buy from garden furniture and summer fashion ranges; recovering some of the ground lost in April.”  Sales of food were also particularly buoyant with the best single month’s performance since July 2013.  Another encouraging element of the overall upturn was the fact that the growth was distributed across channels – stores made a comeback with their best showing in 16 months.

The FA Cup Final and Royal Wedding possibly played a part by lifting the nation’s spirits but the figures show that Harry and Meghan’s big day itself was more of a distraction than a help – shoppers stayed at home to watch the festivities and sales also tailed off once the festivities came to an end.

The sunshine is patchy

If you look into the statistics more closely the picture is mixed.  On a total basis May sales figures increased 4.1%, against an increase of just 0.2% in May 2017.  This May 2018 performance was above the 3-month and 12-month averages of 1.2% and 1.5%.  It was also the highest increase since January 2014 (when you take out any distortions created by Easter).

Non-food items declined 3% on a total basis and 4.1% on a like-for-like basis over the three months to May.  The total decline for non-food items on a 12-month basis, the total decline amounted to 0.2%. However, viewed on a monthly basis, and excluding Easter distortions, it was the best performance since January 2016.

Food sales on a like-for-like basis increased by 2.0% over the three months to May, and 3.4% on a total basis. On a monthly basis, this was the best performance since July 2013, excluding Easter distortions.  However, this is below the 12-month total average growth of 3.6%, adding weight to the argument that growth has peaked since inflation has started to recede.  Paul Martin, Head of Retail at KPMG comments that “Grocery sales once again continued to be strong, boosted by added enthusiasm for picnics and barbeques.”  He also noted that “Appetite for non-food categories, including fashion, also experienced a welcome uplift. That said, the picture was less favourable in the larger discretionary categories such as home improvement and furniture.”

Online sales, as you might expect, did particularly well.  Online sales of non-food products increased by a hefty 11.9% in May, up from growth of 4.3% in May 2017. This is above the 3-month and 12-month averages of 8.8% and 8.1% respectively.

Unsettled weather ahead

Despite these sunny May figures the longer-term outlook is stormy.  Helen Dickinson warns that “Despite this more positive set of sales results, the retail environment remains extremely challenging, with trend growth still very low by historical standards. Retailers remain focused on investing in new and exciting shopping experiences for the future as margins remain tight and the competition fierce.”

Paul Martin takes a similar view: “While the month’s figures may paint a rosier picture, there is no room for complacency. The market is increasingly being split into winners and losers, with a number of legacy players continuing to face extremely challenging conditions. As such, focusing on transforming businesses both operationally and financially is pivotal.”

Turning threats into opportunities

Nobody in their right mind would deny the fact that the retail industry is undergoing major upheaval at the moment.  But the challenges are by no means insurmountable.

First, the bad news.  The number of retail stores is falling – there are 2,485 fewer than three years ago.  Online shopping continues to grow – over 16% of all sales were made online last year, up from 12.5% just two years before. Since the beginning of 2015 there have been more than 3,200 retail insolvencies in the UK and some high street household names such as Mothercare, New Look and House of Fraser have been struggling.  Customers also continue to feel the pinch as real earnings continue to be squeezed.

The good news?  The government could do a lot to relieve some of the pressure on the high street. The general consensus is that the business rates system is no longer fit for purpose and places an unfair burden on retailers – this sector contributes around 5% to the UK economy yet actually pays 25% of the country’s business rates.  This discourages new entrants from setting up shop on the high street.  It makes it harder for established retailers to find the money to reinvent themselves.  And it is a major part of the calculation when chains look at whether to expand or rationalise their portfolios.

Alongside this the government needs to ensure that retailers continue to enjoy tariff-free and frictionless trade once the Brexit negotiations are concluded.  If this is not achieved this will make things harder for retailers by driving up prices and reducing choice for consumers.

Helen Dickinson also makes the point, in a recent post on the British Retail Consortium website, that the industry is responding positively by making major operational changes.  “We have too much retail space. In the future, there will be fewer shops and their role will be different – more engaging and based on creating experiences for customers. Online will continue to grow, but seeing online and stores as two separate channels will become increasingly irrelevant. This will deliver better service and experiences for customers, and enable new emerging brands and entrepreneurs to grow. And the role for technology and innovation will expand exponentially.”  She concludes that “The future is bright, but we must create the opportunities to ensure it’s not armageddon retail but reinvention retail.”

Conclusion

The retail sector, despite some of the recent headlines, is here to stay.  It’s still the UK’s largest private sector employer and the latest figures from British Retail Consortium show that sales are holding up well.

However, bricks and mortar retailers do need to change.  It’s imperative they move swiftly to seamlessly integrate their online and offline channels in ways that create exciting new shopping experiences.  Part of that equation obviously involves investment in the IT side of things.  However, to get the maximum return on that outlay there needs to be a corresponding spend in-store to ensure that the physical environment is as vibrant and inviting as the online one.

This is where we can help.  Our well-designed retail displays provide the flexibility, practicality and chic looks that high street stores require.  We’re also value engineering specialists, which means we can create bespoke products that not only work effectively but which are economical to produce.  Finally, if your budget is really tight, our shop fitting systems are a smart way of achieving many of the benefits of a bespoke solution but for an even keener price.  If you’re thinking about how best to freshen up your shopping experience whilst keeping costs to a minimum then give us a call.  We’re more than happy to share our retail experience and shopfitting expertise with canny entrepreneurs.

Dymond Shop Fittings

Dymond Engineering and Metal Products Ltd
Combrew Lane
Barnstaple
Devon EX31 2ND

Tel: 01271 372662
Fax: 01271 322077
Email: info@dymondshopfittings.co.uk

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