Supermarkets behind fastest fall in retail sales in a decade

02-07-2019

What with the royal wedding, the men’s football World Cup and the glorious weather last summer, retailers have a hard act to follow this year and things are about to get much worse, analysts and business leaders say.

Don’t be fooled by the weekend’s hot weather: the state of retail in Britain is gloomy. The CBI, Britain’s biggest business lobby group, found that retail sales volumes fell at their fastest pace in a decade in the year to June. Grocers were responsible for the largest fall, and Kantar, the market analytics company, recorded sales of ice cream down by £15 million last month compared with a year earlier, with beer sales down by £17 million and burgers by £6 million. The British Retail Consortium, the trade body, found that stores had suffered their steepest fall in customer visits in six years in May.

Richard Walker, managing director of Iceland, the supermarket, said retail was facing the “perfect storm” of higher business rates, Brexit uncertainty, online competition and the introduction of a living wage. He added that Britain leaving the European Union without a deal on October 31, the new deadline, would be the worst possible timing for retailers. “If we wanted to build up a safety net of provisions it’d be impossible because of the lead-up to Christmas,” Mr Walker said. “There’s no surplus in warehouses to create a buffer.”

Patrick O’Brien, UK retail research director at Global Data, the analytics company, predicted year-on-year comparisons would not improve until November, saying: “That’s if there’s a soft or no Brexit, and only because last November was extremely bad. It’s going to be a very, very difficult period . . . outside food and certain types of essential clothing, especially for big-ticket items such as major electrical, DIY and furniture purchases.

“It’s not even clear whether the discounters — Aldi, Lidl, Home Bargains, The Works, Card Factory — will be able to sustain like-for-like growth. They’re really depending on further expansion of physical stores but as they build out each are competing against each other. Before you might have been near an Aldi; now you’re likely to be near an Aldi and a Lidl. The ability of retailers to weather the weather has been lessened because of political uncertainty.”

Mr O’Brien pointed to Bonmarché, the women’s fashion retailer aimed at the over-50s, that succumbed last week to an offer from Philip Day, the billionaire owner of Edinburgh Woollen Mill, less than three months after rejecting the deal as “inadequate”. It said it now had no choice after bad weather caused poor trading in the first quarter.

Seb James, managing director of Boots UK, which last week confirmed that it would be closing 200 stores, struck a similarly cautious tone. “We currently have a fairly unusual political situation. I think we’re due a cyclical recession,” he said. “The storm clouds are gathering, they may pass us but they may not. We need to be ready.”

For Mr Walker, the high street is in a process of Darwinian evolution and the culling of unsuccessful mid-market players should not be slowed by company voluntary arrangements, an insolvency process that allows businesses to negotiate rent reductions and store closures while they get back on their feet. It has been used by high street players including Arcadia, Monsoon, New Look and Select. “CVAs reward failure. I can’t think of any that have worked,” he said.

More successful retailers are focusing on value and the shopping experience, a key issue for millennial and Generation Z customers. Henry Gregg of the New West End Company, which promotes shops on Bond Street, Regent Street and Oxford Street in central London, highlighted the success of the skate park at Selfridges London, but admitted that CVAs in his neighbourhood reflected hard times on the high street.

Fraser McKevitt, head of retail and consumer insight at Kantar, said: “The weather comparisons aren’t helping but there’s no getting away from the reshaping of the high street towards experiences and online shopping. Any retailer that isn’t offering value and a real point of difference is under pressure.”

Source: The Times