UK’s Retail Sales Plummets To Lowest Level Since The Financial Crisis: CBI Survey

Retailers foresee a massive slowdown in business conditions in the coming months from the level of February 2009, as per the latest quarterly Distributive Trades Survey.

The survey also revealed that retail sales volumes and orders made with the retailers equally suffered and witnessed their sharpest slump from December 2008 in the year to August, sales were also below average in the year to date period and at posted their lowest in four months.

The survey conducted by Confederation of British Industry (CBI) revealed that conditions could deteriorate further, with the potential investment in this sector for the year ahead standing negative for the sixth consecutive quarter, but to the least extent over this year so far. Employment has also deteriorated and fell for the eleventh straight quarter in August.

Out of the sub-sectors in the retail arena, only non-store retailing businesses recorded an increase in sales; however, volumes slumped across most other sub-sectors, including the grocery, clothing and hardware.

Also, Internet sales growth was below its long-term average, with an increase equivalent to the previous month, and the same growth pace in the sector estimated to continue next month. Stock levels compared to expected sales spiked up, matching the survey’s high record seen in November 2014.

Key Highlights of the survey

10 per cent of respondents recorded that average sales volumes were up on a year-ago period in August, whereas 58 per cent of the respondents opined that volumes have plummeted, giving a balance of -49%.

Around 10% retailers in the UK estimates that volumes could decline further but at a slower pace in coming month, and 14 per cent of the retailers are expecting a surge and 24 per cent of the respondents are expecting a greater degree of fall in the months to come.

Several retailers recorded that sales were marginally below the average for the time of year, but to a lesser degree than last month, with 15 per cent recorded that sales were good, 54 per cent said that it was average, and 21 per cent of the respondent witnessed poor sales, gave a rounded balance of -6%.

Meanwhile, Orders placed upon suppliers plunged at a higher rate since December 2008, however, around 10 per cent of survey respondents recorded a surge in orders placed, and 67 per cent of the survey respondents witnessed a decline, giving a balance of -57%. Survey also revealed that orders are forecasted to decline further in September 2019 but at a slower rate.

Approximately 2 per cent of the survey assenters said that the business situation could improve over the next three months, with 27 per cent respondents expecting a further decline, giving a rounded balance of -25%.

Around 16 per cent of the surveyed retailers shown their intention to invest more over the next 12 months as against the past 12 months, however, 35 per cent of the respondents were planning to invest less over the next twelve months, giving a balance of -19%.

Average selling prices against the year-ago period shot up by somewhat (+67%) but are estimated to increase slowly in the next month (+35%).

Mounting concerns of a gloomy economy

Recently Kantar- a leading global data and consulting company on July 23, 2019, pointed to the mounting concern of a gloomy economy ahead and revealed that UK's retail sales declined by 0.5% on a YoY basis in the 12-weeks ended to July 14, 2019. The latest retail market numbers are lowest since June 2016. However, this was not surprising as the retail industry reported record sales in 2018, mainly driven by the year's hot summer. But it was assumed that sales would back to growth once relative highs of 2018 summer pass.

While, there is good news for the consumer is Like-for-like grocery inflation data, which was softened by 0.9% during the period, but made it difficult for a retailer to post a value growth. If we put some light on the traditional summer categories, consumer spent approximately £75m less this summer against the previous year, particularly beer sales plunged by 11% on a Y-o-Y basis, and cider sales decreased by 13% against the previous year. Sales of soft drinks during the past one year plunged in actual numbers by £56m and sales of ice cream dragged by £55m on a y-o-y basis.

Mr Fraser McKevitt, the head of retail and consumer insights at Kantar, commented that “last twelve weeks was a challenging one for the UK grocers and If you kept aside Ocado Plc, the growth slumped at every highstreets supermarket amid tightened consumer spending.

However, on account of the cooler weather which was prevailed for most of the time in the previous year, it has given confectionery items with an opportunity to post growth and leapt up to an extra £68m on consumer spending. In Particularly chocolate demand increased by 15% on a Y-o-Y basis. And, despite a challenging market environment, demand for branded products recorded improvement marginally better as compared to the overall market and improved slightly by 0.2%.

Lisbon-Headquartered Lidl was one of the fast pace growing brick and mortar Highstreet retailer,  with revenue surging by 7% on a Y-o-Y basis and Kantar report revealed that the company posted a revenue increase of 19% in the alcohol space and reversed the market trend, this was heavily backed by the Lidl’s deal, which was offering customers a 25 per cent discount for whosoever was buying six bottles of wine at one go. It also added that this move was pushing consumers to buy the trolley, not the basket to avail the company’s deal. Also, the retailer was offering some discount to the consumer when they spent £20 or above.

Despite retail industry facing challenges in the UK, the high-tech online grocer “Ocado Group Plc” posted revenue growth of 11.9% on a Y-o-Y basis and increased its consumer base by 6% over the past one period. Ocado Group Plc (LSE: OCDO) is one of the largest online grocery retailers in the UK. The company’s main objective is to provide its customer with a better shopping experience. The company has divided its product based on the service, price and range. The company is currently having a customer base of over 580,000 people. Its strong business model protected it against the challenging market conditions. In fact, its customers were buying more frequently as compared to brick and mortar retailer who witnessed difficulties in the past year.

Whilst, Tesco Plc’s market share declined by 0.4% on a Y-o-Y basis, and now the group has approximately 27.2% market share in the retail sector. Tesco Plc (LSE: TSCO) is a UK-based company and engaged in the grocery retail business and financial services. The company has global footprints including the United Kingdom, Poland, Ireland, Hungary, Slovakia, Malaysia, and the Czech Republic being the major markets. The company is also into retail banking & insurance services. The company serves millions of customers and have more than 6,800 stores globally. The company is the leading retailer and has an employee strength of 450,000. Its key peers are J Sainsbury and WM Morrison Supermarkets Plc.

The above-discussed development is the UK’s retail arena; we expect that retail sales will witness pressure in the remaining period of 2019. Since, Mr Johnson took charge as new British Prime Minister, the probability for a disorderly Brexit has surged up, and Prime minister is trying all possible means to take the UK out of European Union before October 31, 2019. Also, recent Brussel has rebuffed Johnson demand to re-negotiate the Brexit arrangements.

Indeed, a slowdown in retail sales is bad for the UK’s economic health, mainly because the retail was the only sector which performed well since the 2016 Brexit referendum.

The recent developments in the UK were clearly pointing towards a no-deal Brexit situation, despite the warning given by some of the top-notch economists and market analysts that a no-deal withdrawal of the UK could drag it into a recession. Recently, Mark Carney, the Governor of the Bank of England (BOE) in the latest Inflation report commented that, as sterling is depreciating considerably against the other major currencies, this could force BOE to increase interest rates in order to provide support to sterling. Plunging pound is also a significant risk, which the retailers are witnessing as it is going to have a material impact on their bottom line and could increase their import costs as well.


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