Published Wednesday 16th January 2019

UK retail sales were flat for December, as businesses suffered their worst Christmas period in a decade. The British Retail Consortium (BRC) reported total retail sales growth of 0.0% in the last month of 2018, in comparison to December 2017. This was the first time in 28 months that retail sales had completely stalled and represented the worst Christmas performance since the financial crisis of 2008.

December showed a decline in real-term consumer spending that leaves many major retailers on the brink heading into 2019. However, in amongst the common reasons for a declining market, there are a few glimmers of hope for an industry struggling through significant changes.

Consumer Economic Confidence at Rock Bottom

As with many industries, the main reason outlined by most retailers announcing negative results is a lack of economic confidence in the UK. In a similar spending report conducted by Barclaycard, they stated that people “remain cautious amidst ongoing economic uncertainty,” a sentiment that is echoed by other commentators.

The threat of a no-deal Brexit hangs over the future operations of the retail industry. However, during December it was predominantly felt through its early impact on consumers. A slowdown in national economic growth has led to the public cutting back on usually extravagant Christmas spending in certain areas, which has compounded problems faced by retailers throughout 2018.

Traditional Retail Continues Deterioration

Non-food sales for the three months to December were down by 0.4% year-on-year. This is one of the worst sectors for performance, and that has translated into struggling outlooks for many major high-street retailers. Debenhams blamed a “volatile” market for a 5.7% fall in like-for-like sales over Christmas, while Marks & Spencer (-2.2%) and Halfords (-2.2%) suffered similar depreciation. Mothercare experienced a particularly bad festive period, reporting an 11.4% drop in store sales for the 13 weeks up to 5th January. The company is in the middle of a store closure plan in the UK, a fate that appears increasingly likely for many other non-food retailers.

The fate of traditional high-street stores was further compounded over the Christmas period by the strong performance of online rivals. The period has been particularly successful for discounters, with fast fashion company Boohoo raising its profit expectations after a Christmas trade which saw 33% sales growth in the UK.

Food Retail Survives the Storm

For a long period, food has continued to perform despite the adverse results of other retail sectors. This continued during the Christmas period, but the amount of strength it showed was surprising. The average sales growth for the food sector was 1.8% in the three months leading to Christmas, making it one of the only categories to see an upturn in performance. Tesco was one of the most successful retailers over the Christmas period, reporting 2.2% like-for-like sales growth over the six weeks to January, whilst Aldi and Lidl also announced positive figures.

IGD, leading food & drink sector analysts, commented that Christmas had been positive for the industry. The CEO said in a statement that “the desire to indulge over Christmas prevailed once more” and that seven out of ten shoppers spent more money on better quality foods for the holiday period. The positive performance was likely aided by the lower food prices evidenced in December’s retail price inflation which allowed companies to maintain strong profit margins, something non-food retailers are often unable to achieve.

The Future Outlook for UK Retail

However, even the food sector has issued warnings about the market heading into 2019. They say that the mood among consumers is fragile, “with only 20 per cent of shoppers expecting to be better off financially over the next twelve months.” It is clear that, regardless of the Brexit outcome, the financial uncertainty will take a while to clear. With retailers braced for an unpredictable start to 2019 regarding sales, now is the opportune time to evaluate longstanding company expenses.

How ERA can help companies in the Retail sector

Here at ERA, we are experts at retail procurement, helping major UK businesses save money on their expenses. Our dedicated teams work in a range of cost sectors, such as distribution and utilities, to help refine your supply chains. At a time when sales continue to fluctuate, improving procurement strategies can provide your business with the breathing space needed. So, if you are interested in seeing what our experienced specialists could save your business, why not get in contact with us today?