Retail sales volumes fell by 0.1% in June 2022 following a fall of 0.8% in May 2022, ONS reports

Retail sales volumes fell by 0.1% in June 2022 following a fall of 0.8% in May 2022 (revised from a fall of 0.5%); sales volumes were 2.2% above their pre-coronavirus (COVID-19) February 2020 levels, but down over the past year.

Non-store retailing (predominantly online retailers) sales volumes fell by 3.7% in June 2022; sales volumes were 20.8% above their February 2020 levels.

Automotive fuel sales volumes fell by 4.3% in June 2022 with retailers suggesting the fall was linked to record-high petrol and diesel prices impacting the amount of fuel people were buying.

Non-food stores sales volumes fell by 0.7% over the month because of falls in clothing stores (negative 4.7%) and household goods stores (negative 3.7%), such as furniture stores.

Food sales volumes rose by 3.1% with retailers confirming that increased sales were because of Queen’s Jubilee celebrations.

The proportion of retail sales online fell to 25.3% in June, its lowest proportion since March 2020 (22.8%), continuing a broad downward trend since its peak in February 2021 (37.4%).

Commenting on today’s ONS retail sales figures, Kelly Miely, retail partner at Deloitte, said: “June’s bank holiday weekend and the return of summer events did not give the retail sector the boost it was hoping for. 40-year high inflation continued to dent consumer spending power resulting in retail sales volumes falling by -0.1% for the second consecutive month.

“Street parties and the start of barbecue season benefited food sales volumes, which grew by 3.1% compared to May. Elsewhere, many consumers are cutting down on non-essentials, and despite wedding and holiday season now being in full swing, clothing sales volumes fell -4.7%. Spending on large ticket items such as furniture also fell -3.7%, bringing down non-food sales volumes by -0.7%.

“However, ongoing cost of living concerns are giving many consumers no choice but to allocate their spending on essentials only, such as groceries, with little or no wriggle room to spend on luxuries. For those consumers who are looking to reduce their supermarket spend, many are turning to shopping ‘little and often’ to curb single, large bills at the checkout.

Twice as many consumers look for cheaper brands than a year ago

Deloitte’s latest Consumer Tracker found that whilst most consumers (56%) have seen their expenditure increase in the last quarter due to rising prices, a growing number of consumers (27%) are actually spending less. Of these, 58% say it is in an effort to save money. 45% are switching to cheaper brands or stores; twice as many as a year ago (19%).

Discounts to deepen?

“Given the disruption from COVID-19, many retailers had anticipated ongoing supply chain issues, and adapting to ensure shelves were well stocked. However, with consumers becoming more cost conscious, some retailers may have no choice but to turn to discounting over the next quarter as they look to shift excess inventory ahead of the arrival of new season lines, giving consumers a chance to take advantage of some good deals along the way.”

Lynda Petherick, head of retail for Accenture in the UK and Ireland, commented: “The continuing slide in consumer spending is another blow to a retail sector already grappling with increasing costs and decreasing customer spending.   

Many businesses will have been hoping that the Queen’s Platinum Jubilee and the long weekend would have given them cause for celebration, but it clearly wasn’t enough to offset battered consumer confidence.  

During a week in which inflation continued to climb and business confidence fell to a record low, firms remain stuck with the unsavoury choice of swallowing rising costs or passing them on to shoppers. Customer loyalty is everything, so at a time when profit margins are being threatened by rising costs and tightening consumer belts, technology will be the key to reducing brands’ outgoings and their subsequent prices by ensuring maximum productivity and delivering a better experience for customers and employees alike.”

Business Outlook

·         UK optimism halves to a joint-record low of +28% but remains stronger than all other European countries surveyed

·         Firms project a decline in profits for the first time in the series history

·         Inflation drives a rise in staff costs and prices charged, although this shows signs of peaking

·       59% of firms predicting an increase in their output charges – the second highest-on record, following a survey record of +62% in February

Aled Patchett, head of retail and consumer goods at Lloyds Bank, said: “The figures show how retailers are having to act quickly to combat a two-fold inflationary challenge.

“As the cost of goods goes up, there is increasing pressure on businesses to reduce prices as consumers cut back on their discretionary spending, prioritise discounts and offers, and switch to ‘value’ and non-premium brands. Such cuts may narrow margins but are essential to maintaining cashflow. Add to that the higher pay demands of employees trying to keep up with the cost of living, and the squeeze on retailers gets tighter.

“Events like the Commonwealth Games, greater socialising, and increased domestic tourism can offer localised benefits for retailers over the summer. However, they are all too aware that the economic challenges facing them are unlikely to ease in the near term. The importance of driving cashflow, and managing it effectively is key to the success of retailers in what are difficult trading conditions.” 

Silvia Rindone, EY UK&I retail lead, comments: “Despite the long Jubilee bank holiday weekend at the start of June, today’s ONS retail sales data shows that consumers are feeling the pinch from the rising cost-of-living and are becoming more cautious about where and when they are spending. EY’s latest Future Consumer Index (FCI) found that 37% of low- and middle-income consumers are now only purchasing the essentials, compared to 26% in the last survey in February 2022, while 44% of low-income consumers are expecting their financial situation to worsen in the next 12 months. In stark contrast, just 15% of high-income consumers expect to be financially worse off in the next 12 months with 61% of this income bracket saying they are excited about spending money on things that will improve their lifestyle.

“The FCI data also highlights the growing disparities between these low-income consumers who are preparing to tighten their grip on finances and high-income consumers who are able to maintain spending levels – typical of a K-shaped recovery in which different groups experience different rates of recovery after a recession.

“A fall in consumer confidence is now having a clear impact on retailers’ bottom lines. EY-Parthenon’s profit warning analysis, released earlier this week, shows that half of all profit warnings issued in H1 2022 came from consumer-facing sectors, compared to a third in H1 2021, with most citing rising costs as the reason for the warning. The research underlines the difficulties companies face when trying to pass price increases on to consumers who are reducing their spending levels, which, in turn, is creating tensions along the supply chain and leading to high levels of unsold stock.

“Online retail sales also continued their downward trajectory. This was also reflected in the profit warnings analysis, with three-quarters of the FTSE Retailers issuing a warning in H1 2022 coming from companies which operate exclusively or mostly online. These companies have been particularly affected by the shift in sales back to ‘bricks and mortar’ stores and have been disproportionately affected by increasing delivery costs and product returns. 

“Companies which are managing to adapt to the challenges are those developing robust plans to manage cost inflation and who have strong processes in place around cash management and inventory visibility. They also need to ensure they address consumers’ affordability concerns by selecting the right value strategy to retain cost conscious shoppers such as offering value for money or ‘own label’ options.”