British shops suffer worst August in three years

28 September 2018

As inflationary pressures and a record heat-wave drove consumers away, British shops suffered their worst August in three years according to the most recent analysis. At the same time, a long-term shift to buying online continued, with lower prices and added convenience wooing the customers of bricks-and-mortar brands.

The economy of the UK has continued to endure a turbulent spell in the run up to the culmination of Brexit. In the first half of 2018 alone, there were a total of 131 profit warnings, thanks largely to a surge in the second quarter. That period saw 58 profit warnings, representing a significant climb from the 45 seen in the same period in 2017. This was seen as a cause for concern, as many companies face an uphill struggle to recover in the second half of a sluggish 2018 – particularly in the retail sector.

The number of profit warnings by FTSE-listed retailers has doubled over the past year, as the sector has been acutely hit by rising costs and subdued spending. Consumer confidence in Britain continues to flag thanks to stagnant wages, alongside a number of pressures resulting from or exacerbated by Brexit proceedings, including a weakened pound and a shortage in skilled labour, as educated EU nationals consider a mass exodus from the island nation with an ageing population.

Monthly like-for-like results 2009-2018

According to a report during the summer of 2018, there was upsurge in positive sentiment surrounding a Royal Wedding and the relatively successful World Cup campaign of the England team, both of which boosted sales figures from the cold and wet start to 2018. At the same time, a spell of fine weather was also credited with a spike in footfall during the summer months, however these improvements only served to slow the rate at which sales figures were falling, while ultimately being expected to do little to support UK retailers beyond a short window of time, as adverse trading conditions persisted.

That forecast has been proven right just a few months later, with the news that British shops suffered their worst August since 2015. According to BDO’s High Street Sales Tracker – which outlines the weekly sales changes of more than 85 mid retailers with some 10,000 individual stores located on high streets throughout the UK – retailers across the nation saw a like-for-like sales drop of 2.7% in August from a year earlier. This marked the seventh straight month that in-store sales have fallen.

Oddly enough, a record-breaking summer heat-wave is being blamed by some as having hit retailers hard, having made spending in bars and on entertainment more appealing than shopping. At this stage, however, having previously cited record May temperatures as being the ally of retail sales, it is becoming increasingly clear that British stores are the victim of some far more wide-reaching economic concerns than whether the sun is shining or not. Above-target inflation and sluggish wage growth continue to denting spending on goods other than food in the UK, while a worker on a median salary of £23,474 would have to work 167 years to earn the median annual pay of a FTSE 100 boss – who would likely have seen 11% salary growth this year, compared to the stagnating income of their staff.

Monthly like-for-like results by sector 2012-2018

Sector performance

BDO found that the segment of retail suffering the worst performance was undoubtedly homeware. These sales slumped by 6.1%, representing homeware’s worst performance at this time of year since 2012. This troubled period in the segment’s existence has triggered doubts over the future of Homebase, as well as the collapse of House of Fraser, while multiple other stores are facing the prospect of restructuring to avoid closure.

In the fashion sector, meanwhile, in-store sales also saw a torrid August, falling every week. During three of those weeks, the figures tumbled by more than 3%, as fashion retailers toiled through their worst performance since 2015. In stark contrast, though, online sales of all goods jumped 13.7%.

Sophie Michael, BDO’s Head of Retail and Wholesale, commented, “In a climate of rising interest rates, prices rising and subdued real wage growth, there is limited discretionary spend left and that is taking its toll on fashion and homeware sales, especially bigger-ticket items.”


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Lack of high street openings sees UK retail in precarious state

11 March 2019

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.