Light at the End of the Tunnel for the UK's Shops, Following Record Plunge in Retail Sales in April

- Record plunge in UK retail sales
- Online sales pick up some of the high street's losses
- But "light at end of the tunnel" says no industry expert

Image © Adobe Images

The UK economy suffered a 18.1% plunge in retail sales in the month of April, a record collapse but one that is hardly surprising given the scale of the economic shutdown enforced by the government in its effort to stop the spread of covid-19.

The decline in retail sales volumes was larger than markets had been expecting, as a survey of economists had shown expectations were set for a -16% month-on-month decline.

The record drop in April follows a 5.2% fall in March, leaving sales 22.3% below their pre-coronavirus February level.

Sales of clothing fell 50.2% m/m while petrol sales fell 52.0% m/m.

"All of this comes at an already precarious time for the British high street. The sharp fall in the value of the pound and a prolonged period of subdued consumer confidence following the 2016 referendum had hit demand over recent years, while retailers were contending with the combined cost pressures of consecutive increases in the minimum wage, and more recently, inventory building around Brexit deadlines," says James Smith, Developed Markets Economist at ING Bank.

With the high-street all but closed it is understandable that consumers turned to online sources, and this was reflected by an increase of 18.0% m/m in online sales. This takes the overall share of internet sales to 30% of the total, an increase from 22% in March.

Above images courtesy of ING Bank.

Concerning the outlook, Paul Dales, Chief UK Economist at Capital Economics says April is likely to have been the low point for retail sales volumes, as some shops started to partially reopen in May. Capital Economics estimate consumption may fall by 25% quarter-on-quarter in the second quarter of 2020 as a whole, which would be a tad better than the 30% quarter on quarter fall they had initially been expecting.

“High street retailers have never experienced a fall in sales this dramatic before but there is light at the end of the tunnel with the Government’s announcement that non-essential retail stores can provisionally start to re-open in June," says Lee Lucas, Principal and CEO of the Fashion Retail Academy. "In fact, with summer holidays abroad not going ahead as planned, fashion retailers could be the unexpected winners from the biggest staycation the UK has ever seen."

Lucas says following months of lockdown, "customers will be relishing the chance to enjoy familiar activities again and that will include putting a bit of retail therapy back in their lives."

Retailers were forced to close their doors in March as the Government stepped up efforts to contain the spread of covid-19, ushering in a period of unprecedented uncertainty for the country's retail businesses.

However, grocery stores saw a surge in demand as consumers stocked up supplies in anticipation of the lockdown, which will have flattered April's data somewhat.

With the surge to supermarkets having faded in May the entire sector saw a slump. Yet, May has also seen some retailers open up once more, with garden centres and hardware stores opening their doors once more.

Early June is meanwhile expected to see further restrictions eased, which should allow for sales to pick up further.

"The announcement that June could mark a turning point has given them a target to focus on and, more importantly, time to alter working practices to adhere to social distancing guidelines and ensure stores are operating with enhanced health and safety measures in place," says Lucas.

However, ING's Smith is less optimistic on the prospects of the UK's retail industry, noting that the majority of sales still take place in the traditional high-street setting.

"While the balance will be redressed to a certain extent when stores reopen, in many cases shops may not reopen at all. According to the Local Data Company, store openings have fallen consistently since 2015, while closures have risen by around 14% over that period. The vacancy rate in the retail space has crept higher over recent years, and we assume this trend will only accelerate," says Smith.

ING say the hit to the traditional retail sector caused but he lockdown will only accentuate the trend away from physical retail we’ve seen over recent years.