“Worst December in 10 Years”: Brick-and-Mortar Retail in the UK Faces Overindebted Consumers

But online sales are hot, now at 20% of total retail. 

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

It’s a confusing picture. A monthly survey of retailers published by the Confederation of British Industry (CBI) indicated that just 4% of retailers reported good sales volumes for January, whereas 41% said they were poor, giving a balance of -37%, the lowest since November 2011 (-39%). Sales volumes fell in the majority of retail sub-sectors with clothing (-43%), footwear & leather (-53%) and hardware & DIY (-40%) posting the largest declines.

“Pressures on the retail sector remain high, with consumer spending expected to remain fairly subdued and competition fierce,” said CBI Chief Economist Rain Newton-Smith. This competition is mostly online retailers.

This comes after “the worst December sales performance in ten years,” with 0% year-over-year growth despite sharp discounts, according to the British Retail Consortium (BRC).

“The retail landscape is changing dramatically in the UK, while the trading environment remains tough,” the BRC said and being a lobbying body, blamed the government: “Retailers are facing up this challenge but are having to wrestle with mounting costs from a succession of government policies – from the Apprenticeship Levy, to higher wage costs, to rising business rates.”

The government’s Office of National Statistics (ONS) confirmed the slowdown in total retail sales at year-end, but given the surge in online sales, came up with less dreary numbers. It says that seasonally adjusted retail sales, including the booming online sales, in December fell by 0.9% from November; and fourth quarter sales declined by 0.1% seasonally adjusted from the third quarter. But on a year-over-year basis, December sales were still up 3.7%, thanks largely to the boom in online sales, but also higher fuel sales and food sales.

Online sales surged 13.9% in December year-on year, according to the ONS, and accounted for 20% total retail sales in December. That’s up from just 5% ten years ago and double the share online retail in the US.

This rapid shift to on line retail is a trend that poses a serious threat to the long-term — and in some cases, short-term — viability of many high street stores, although a lot of those same stores do have online channels. But that’s not the only reason for the pain. There’s also, of course, the uncertainty surrounding Brexit, of which the CBI is one of the most vocal opponents.

As the financial fallout grows on the British high street, the number of companies entering administration rises. Others, including big store chains like Debenhams, Marks&Spencer and John Lewis, have unveiled store closures and major job cutbacks. According to the Retail Employer Monitor, published by the BRC, as many as 70,000 retail jobs were lost last year. During the same period an estimated 1,267 chain stores were closed or earmarked for closure.

And it’s not just Brexit uncertainty or the unstoppable rise of Amazon and its ilk that threaten the future of UK’s high street chains. There’s also the issue that the UK’s debt-laden consumers may have reached their limit.

British household finances, among the most solvent a generation ago, are among the most indebted today. At last count, unsecured consumer debt — such as credit cards and personal loans, but not including housing related debt, such as mortgages — had soared to a record high of more than £205 billion ($271 billion). But according to the Bank of England’s latest quarterly credit health check, the trend may be reversing. Unsecured consumer debt could be in the process of witnessing its biggest decline since records began 12 years ago, partly as a result of regulatory changes and partly due to the uncertainty surrounding Brexit, the central bank recently warned.

While this shift by consumers is long overdue, it could not have come at a worse time for retail sales that have grown dependent on unsecured consumer debt. For the UK’s high street retailers, the effects are already being felt. By Don Quijones.

Related Posts:

We truly are under attack. We need user support now more than ever! For as little as $10, you can support the IWB directly – and it only takes a minute. Thank you. 715 views