UK Retailers Scale Back Discounts in July As Demand Picks Up

The month of July has been particularly eventful for the British retail sector. While the lockdown months saw a massive demand increase in the online food and beverage segment, the opening of the lockdown has seen the demand for consumer electronics and other home durables increasing significantly. In a survey conducted by British Retail Consortium (BRC) in the first week of July, it was noted that British retailers were giving least discounts in July compared to May and June. The average price of goods in July was 1.3 per cent lower than they were in July last year, while they were 1.6 per cent lower in June and 2.4 per cent lower in May this year from the same period last year.

The retail industry through the lockdown and since the lockdown

The online segment of the retail industry was one of the very few industries in the UK that performed well through the six-week lockdown. During the six-week lockdown, when eating out and office catering was not an option, home delivery of food items and other essentials saw demand skyrocketing that had never been witnessed before. However, for other product segments, the lockdown proved to be a very tough time. The government had banned the sale and distribution of non- essentials during the lockdown for fear of the spread of the virus, bringing the trading of these commodities to a complete standstill. There are several of these goods; however, which may not be considered as non- essentials but have a steady demand. Example of such goods are toiletries, clothing, daily use home appliances, consumer electronics like computers and laptop and furniture. People can withhold spending on these commodities for some time but not for long; hence when the lockdown was eased, there was a massive surge in demand for these goods. This release of the pent-up demand, however, has not abated much since May, making retailers more confident that demand is lasting, and they have started offering fewer discounts as they did before. The demand and inflation in food items; however, during the past month has remained steady.

The demand factors affecting different segments of the retail industry differently

An important observation has been made by the BRC though in its survey. The demand levels facing different commodities in non- durable segment of the retail industry is drastically different than what was witnessed before the pandemic had hit. This difference in demand levels has more to do with utility levels of each of these commodity levels rather than consumer preference and is also expected to remain the same for the next few months.

Another important factor that is giving confidence to the vendors of non- essential consumer goods to offer fewer discounts is the general increase in business activity levels across all other industries. It is to be noted that important industries, like the housing construction industry, hospitality industry, supermarkets and recreation businesses have started to pick up business activity very fast, raising hopes that a spillover effect of this will be seen in the retail industry. Each of the above industry employs a large number of people and a pickup in business activity in these industries would mean people would have more money to spend, and the general sentiment levels in the country would improve considerably.

The Changing shift in consumer preference levels and bankruptcies in the retail industry

The change in preference from shop floor purchasing to online purchasing also has a role to play in the retailers feeling more confident about the demand prospects facing them. In the past few months, when the proportion of online sales as a proportion of total retail sales has increased exponentially, it has caused several traditional retail chains and stores to shut their shops. The result of this is that for products which cannot be sold over the internet or for which customers would rather prefer to go to seller outlets to physically inspect goods before buying, the competition has come down significantly. On the other hand, huge amounts of inventory would also get locked up in the process when a retailing company goes bankrupt, leading to a temporary scarcity of these merchandises. These are, however, temporary factors and will get sorted out in a few months after which some shift in the demand levels in durable consumer goods may be witnessed.

Conclusion

The current phenomenon of elevated demand levels in the retail industry may very well be a temporary phenomenon. Other than the reasons cited above, there is one big reason that could halt the recovery process in the industry very badly; there is a high probability that there could be a resurgence of the pandemic in the winter months. In the five months since the pandemic first hit the country, the NHS has put up a herculean effort to contain the spread of the virus and treat the already infected in the country. Today the rate at which the infections is spreading in the country has come down significantly, but the pandemic is far from coming under control. If a major resurgence in infection levels happens in the winter months, it may necessitate a re-imposition of the lockdown in the country. Also given that winters are festive season across the western world and people do maximum shopping during that time, retailers will lose out a lot if any lockdown is imposed.

Currently, all hopes of the country are pinned on the early availability of a vaccine. When most of the people in the country receive this vaccination, the fear levels will go down, and economic activity across the country will rise.