Any last lingering hopes that the UK consumer might somehow lead the country to the sunlit uplands of economic growth have surely been well and truly crushed by figures published by the British Retail Consortium (BRC) this morning covering the four weeks from 1-28 October.
These show that UK retail sales decreased by 1% on a like-for-like basis from October 2016, when they had increased 1.7% from the preceding year.
While sales rose 0.2% in October on a total basis, this compares poorly with growth of 2.4% in October 2016. The BRC says it is the lowest growth since May and below the three-month and 12-month averages of 1.7% and 1.5% respectively.
Retail industry analysis: deepest decline
Over the three months to October 2017, in-store sales of non-food items declined 2.2% on a total basis and 2.9% on a like-for-like basis. On a 12-month basis, the total decline was 2.1%, the deepest since BRC records began in January 2012.
Over the three-months to October, non-food retail sales in the UK decreased 0.4% on a like-for-like basis and increased 0.1% on a total basis, below the 12-month total average growth of 0.2%.
This is the lowest since the BRC started measuring non-food in January 2011. The monthly decline is also the deepest since BRC records began. Only days before the release of the data, clothing retailer Next reported in a trading update that instore sales were down 7.7% in the third quarter of the year.
Echoing earlier data
The BRC numbers echo those published earlier by data provider Trading Economics. It calculates that retail sales in the United Kingdom dropped 0.8% month-over-month in September 2017. This followed a downwardly revised 0.9% gain in August and missed market expectations of a 0.1% decline.
Trading Economics calculates that it was the biggest fall in retail trade since March. This was mainly due to lower sales at non-food stores (-1.5%), particularly at other stores (-6.7%); food stores (-0.6%); and petrol stations (-1.6%).
The numbers - combined with those that show official interest rates on the way back up, rising inflation, persistently weak wage growth, and dolorous comments from the Bank of England on the worrying levels of consumer debt - give little cause for optimism to the seasoned sector observer.
The High Street will be different
Exeter High Street, Devon
When even discount retailers, restaurants and public houses can feel and sound empty, the writing for what we have come to know as the traditional UK high street is surely on the wall. If the high street didn't already exist, would anyone feel compelled to invent it?
A backdrop of rising labour and property costs is altering the attractiveness of investment options, as the cost of technology falls and digital capability improves. So says Helen Dickinson OBE, BRC chief executive, in its submission to the Chancellor of the Exchequer Philip Hammond ahead of his budget later in November.
This has profound implications for much needed investments in local communities, new and refurbished shops, and of course jobs, she states. The implications of this are that it’s the most vulnerable communities that will suffer the negative consequences most acutely.
Concerns for Christmas
Returning to the bald figures, Dickinson described October as meagre month in October for retail industry sales as shopping activity slumped. With total growth at its lowest since May and below the 12-month average, retailers will have cause for concern as they prepare for the crucial run up to Christmas, she comments.
She suggests that consumers appear to have opted for outdoor experiences and excursions during the recent school half-term holiday, over visits to the shops. James Stretton, a director at financial hedging specialist JCRA, sees this as a sign of things to come rather than a one-off.
“It's demographics, pure and simple,” he argues. “The biggest consumer demographic is the post-war baby boomer generation. They are ageing, consuming less and the nature of what they are consuming is changing. They want experiences such as race days or balloon trips rather than stuff.
James Stretton, courtesy of JCRA
Demographics and the UK retail
“When I was born in 1965, just over one million babies were born. When my children were born in 1998 and 2000, that figure was down by a third,” he says. “There are two-thirds the number of people in that next generation as there are in ours.”
This is why, he goes on to explain, the high street is increasingly featuring cafes, restaurants, bars, coffee houses, charity shops and bookmakers. We might have bookshops, butchers and bakers but the candlestick makers have gone and their equivalent today will inevitably follow.
The BRC figures, moreover, are very much buoyed by inflation. Real consumer spending power has been on a downward trend in the last year as the acceleration in inflation has caused shoppers to become ever more cautious in considering what purchases they can afford.
“Many now face higher borrowing costs, given the rise in interest rates, which will only serve to heap further pressure onto household finances,” says Dickinson.
A budget for shoppers
Considering the intrinsic link between consumer spending and economic growth, Dickinson says that the Chancellor should reflect on this disappointing state of play. She is calling for him to deliver a Budget that allays the risks of a further slowdown in consumer spending, by keeping down the cost of living.
In other words, a budget for shoppers as well as for shopkeepers. Paul Martin, head of retail, KPMG, says the figures will be a real disappointment and not the start to the golden quarter retailers had hoped for.
“The burning questions for retailers will be whether shoppers are holding off their purchases until Black Friday [the day after that well known British holiday Thanksgiving Day], and whether retailers can recover from this month’s poor performance to end the year on a high,” he says.
“With the Bank of England’s interest rate decision seeing the first hike in 10 years, we are likely to see a continuation of the sector's slow-down, with consumers having less disposable income to spend. A lot of UK consumer spend is debt-financed and that is now coming home to roost.”
Paul Martin, courtesy of KPMG
Experiences to the fore
He too shares the belief that the nature of spending in the UK's high streets will shift. “The look and feel will change as the younger generations believe in the high street,” he says. “Shopping will continue to happen in the physical space but integrated with voice and digital channels. It will be experience- and social event-based.”
Legacy players with a product and real estate mindset could struggle to cope with the myriad challenges they will face in this new environment, he adds. “They need to invest in their property portfolio and in the back office to deliver a seamlessly integrated shopping experience.”
Azad Zangana, Schroders Senior European Economist, also says the raising interest rates will undoubtedly burden those that are struggling to make ends meet, but for the vast majority, it will have a small impact. “That said, it is unhelpful when wages are struggling to keep up with inflation, and when growth is slowing," he added.
A stream of bad statistics
These figures are just the latest in a stream of bad statistics that reinforce the view that the UK economy is heading backwards and downwards rather than onwards and upwards.
The official statement this week on car sales from the Society of Motor Manufacturers and Traders (SMMT) say that the UK new car market declined for a seventh consecutive month in October.
Demand fell by -12.2% in the month, as falling confidence among buyers continued to impact the market. Some might describe this as a plummet rather than a decline. Some 158,192 new units were registered.
Declines were seen across all sectors, with business and fleet demand down -26.8% and -13.0% respectively. Dealers reported -10.1% fewer private buyers taking delivery of new cars in the month.
The car's not the star
Alternatively fuelled vehicle (AFV) demand continued to rise, up 36.9% to 8,244 registrations, while petrol models enjoyed a more modest growth of 2.7%. However, these gains were unable to offset heavy losses in the diesel segment, as continuing consumer concerns resulted in its biggest hit yet, with demand down -29.9%.
Year-to-date, the overall market is down -4.6% on 2016 levels. This aligns with SMMT’s latest forecast for 2017, published last week. It expects the market to end the year on 2.565 million units – a -4.7% decline.
Mike Hawes, SMMT Chief Executive, said that declining business and consumer confidence is undoubtedly affecting demand in the new car market but this is being compounded by confusion over government policy on diesel.
Consumers need urgent reassurance that the latest, low emission diesel cars on sale will not face any bans, charges or other restrictions, anywhere in the UK, he adds.
“We urge the Government to use the forthcoming Autumn Budget to restore stability to the market, encouraging the purchase of the latest low emission vehicles as fleet renewal is the fastest and most effective way of addressing air quality concerns.”
Manufacturing a great story
In stark contrast to this litany of retail woes is the bullish attitude being shown towards manufacturing. Manufacturing is a great good news story, states The Manufacturer magazine as it drums up support for its exhibition in Liverpool in mid November.
“The UK is now eighth in the world league table, having recently overtaken France, and order books are filling fast.” The most recent figures from IHS Markit show the UK manufacturing purchasing managers' index rose to 56.3 in October, signalling expansion for 15 consecutive months.
Even here, though, there is a dark lining round the silver cloud. Time is running out for UK manufacturers to adopt the revolutionary technologies that will enable the UK to compete on the global stage – and they are already behind the curve, the magazine warns.
Danger of missing digital
“They did not invest enough in the third industrial revolution (robots and computers) and they’re in danger of missing the fourth (digital).”
Adds Juergen Maier, CEO of Siemens UK: “We do need to do something fundamentally different. Therefore, I believe creating this industrial strategy to really make a difference, I think, does have a chance. So let's put it like this: it's now or never."