January retail sales a ‘lot less grim’
UK retail sales unexpectedly rose in January as UK consumers continue to spend, with one analyst saying the economic picture is “looking a lot less grim”.
The ONS said retail sales volumes increased by 0.5% in January 2023, following a fall of 1.2% in December 2022, beating expectations for a reading of 0%.
While retail sales were stronger than expected as consumers kept spending but the numbers show that people cut back on buying due to the surge in costs.
Today’s data follows an unexpected drop in retail sales in December, when cost-conscious consumers cut back on spending in the run-up to Christmas.
Highlights from the latest ONS data for January:
- On an annual basis, retail sales volumes were down by 5.7% in the three months to January 2023, as the cost of living crisis meant people could afford to buy less.
- Sales volumes at non-store retailers such as online shops jumped by 2% in January 2023, with “some feedback that January sales promotions supported the rise”.
- Automotive fuel sales volumes rose by 1.7% in January 2023, following a rise of 0.3% in December 2022 as fuel prices continued to fall.
- As food inflation hit a record high, food store sales volumes fell by 0.5% following a fall of 0.7% in December 2022.
- People also bought less clothes in January; clothing stores sales volumes fell by 2.9% in January 2023, following four months of positive growth.
Philip Hall, Managing Director, Europe at CommerceHub believes retailers need to get the balance between profitability and meeting consumer needs: “With the uncertainty set to continue for the foreseeable, brands and retailers are focused on profitability over everything else. E-commerce will be a big focus of conversation for those looking for ways to adapt quickly to shifting demand patterns, maintain profitability and meet consumers where they shop.
“As every penny counts, consumers are more price conscious than ever, with some looking in-store, then checking prices online before making a decision. Retailers and brands are also assessing every channel’s performance and honing their marketing strategies to avoid any wastage.
“Any bets taken in the next few months will need to be carefully calculated as the margins are so fine. Retailers are leaning into unowned inventory to meet customer needs more profitably, and one option that brands are exploring is consolidating stock pools. This minimises risk as if one retailer sells out of a product, then the brand can shift over any excess stock to ensure the customer can still make the purchase.”
Andrew Busby, Industry Lead Retail at Software AG believes now is the time for retailers to really listen to consumers and provide better value:
“ONS figures today showed an unexpected 0.5% rise in consumer spending. Consumers are searching for the best price and are willing to part with their cash when they perceive a great deal. Although familiarity with a brand can help, there’s no such thing as loyalty in retail anymore, and consumers are more than willing to leave a brand after a bad experience or too high a price.
“Price, value and service, wrapped in a great and consistent customer experience, have always been the foundation of great retail but never more than today. However, as consumer behaviour continues to be shaped by the broader economic landscape, supermarkets have to modify their value proposition to appeal to today’s cash-strapped consumer.
“In today’s market, shopping habits are rapidly evolving and the pressure from discounters is relentless. However, it raises fundamental questions about the future operating model of larger retailers.
“Now is the time to listen to your customers, improve loyalty programmes, provide great value and experiences, and make sure you have what they need when they need it.”
For small businesses, the figures provide some light relief say Alan Thomas, UK CEO at Simply Business. “Naturally, the marginal rise in retail sales figures presents some light relief for small businesses. Having said that, there continue to be a number of elements at play which are disproportionately harming the SME community.
“Our research has found that four in five small business owners are worried about the impact the cost of living crisis will have on their business, and that a quarter of SME owners are worried that they, quite candidly, will not be able to pay their bills this year. Many are resultantly being forced to implement price increases, slow their plans for expansion, and even stop hiring.
“The UK’s 5.6 million small businesses account for over 99% of the firms operating in the country and contribute trillions of pounds a year to the economy. A blocker to their ability to grow and innovate is ultimately a blocker to the entire UK economy. We must not forget the crucial role small business owners play when it comes to our recovery.”
