UK retailers get a spring in their step

UK retail sales grew for the first time since November 2018 in the year to April 2019, according to the latest monthly Distributive Trades Survey by the Confederation of British Industry (CBI).

The survey of 110 firms, of which 55 were retailers, showed that sales volumes rose for the first time in five months, likely supported by the later timing of Easter this year. Indeed, sales remained above average for the time of year. Orders placed on suppliers also grew and are expected to pick up further in the month ahead, with sales volumes also set to see somewhat faster growth.

However, while growth in online sales improved slightly, it remained far below its long-run average.

The picture for subsectors within retailing was mixed. Grocers and other normal goods (e.g. jewellery, flowers) were the two primary drivers behind this month’s sales growth. But while grocers returned to growth this month, after seeing broadly flat sales in March, the rise in volumes was still below the long-run average. Furthermore, other subsectors fared worse, with sales falling notably in clothing and department stores.

Elsewhere, wholesalers reported their weakest growth since June 2018. They expect a decline in sales in the year to May 2019; if realised, this would mark the fastest fall in six years. Motor traders also saw a return to growth in sales volumes, but expect a small fall next month. The survey showed further signs of stockpiling, with motor traders’ stocks relative to expected demand rising to their highest since December 2008.

Stockpiling is likely to have supported economic growth in early 2019 as a whole. However, as flagged by business surveys, underlying conditions remain more subdued, as Brexit uncertainty and slower global growth bites further on activity. For more detail on our view of the outlook, see the CBI’s latest economic forecast.

“Pick-up in real wages is a welcome support”

CBI Chief Economist Rain Newton-Smith commented: “It’s encouraging to see retailers with more of a spring in their step than in recent months. The recent pick-up in real wages is a welcome support to the sector, making the pound in people’s pockets stretch that bit further.

“However, this month’s sales growth will have been distorted by the later timing of Easter, and falling sales in clothing and department stores underline how challenging underlying conditions remain.

“The Brexit extension means an economic crisis has been avoided, for now. However, uncertainty continues to drag on consumer confidence, and many retailers report an impact on their sales. Politicians now owe it to the country – its businesses and people – to come together in a total spirit of compromise, setting aside all party political lines, and agree a way forward to avoid a no deal Brexit.”

Key findings from the survey

Retailers:

  • 49% of retailers said that sales volumes were up in April on a year ago, while 36% said they were down, giving a balance of +13%. This was broadly in line with expectations (+15%).
  • 38% of respondents expect sales volumes to increase next month, while 15% expect a decrease, giving a balance of +23%.
  • 46% of retailers placed more orders with suppliers than they did a year ago, while 33% placed fewer orders, giving a balance of +13%. This exceeded expectations (+6%).
  • 35% of retailers reported that their volume of sales for the time of year was good, while 25% said it was poor, giving a balance of +10%.
  • Internet sales growth picked up slightly (+28%) on the previous month (+21%), but remained well below the long-run average (+47%). Internet sales growth is expected to pick up only marginally further in the year to May (+32%).

Wholesalers:

  • 30% of wholesalers reported sales volumes to be up on last year, and 27% said they were down, giving a rounded balance of +4%. Volumes are expected to fall next month (-22%).
  • Orders placed upon suppliers fell (-10%), and a faster decline is expected in the year to May (-28%).

Motor traders:

  • 33% of motor traders reported that sales volumes were up on a year ago, while 22% said they were down, giving a balance of +11%. Volumes are expected to fall slightly next month (-5%).
  • Motor traders’ stocks rose much further relative to expected demand (+61%), and are now at their highest since December 2008.

Is Brexit uncertainty having an impact on your company’s growth? For advice on preparing for all outcomes, email me or call me on 020 7099 2621.