UK retail sales still flat but investment intentions rebound

UK retailers are planning to raise investment in the year ahead for the first time in two years, according to the latest quarterly Distributive Trades Survey by the Confederation of British Industry (CBI).

Although sales remained flat and orders fell in the year to February 2020, there has been a noticeable improvement in investment plans from the previous quarter, with investment intentions seeing the largest swing in the survey’s history. This was driven by large firms and specific sectors (notably grocery, clothing and non-store retailing).

The improving investment outlook came despite the fact that retail sales were broadly flat in the year to February, for the fourth consecutive month (following a period of falling sales from mid-2019). Sales were seen as poor for the time of year – more so than in January – and are expected to remain below seasonal norms in the year to March. Orders placed upon suppliers also fell for the tenth consecutive month, although at a slightly slower rate than in January.

Other indicators underline a challenging environment for retailers. Total employment fell in the year to February, with a further decline expected in the year to March. Average selling prices rose at the slowest pace since November 2016. And optimism about the business situation for the coming quarter was broadly unchanged.

Although overall sales volumes were stable, this masked variable performances by different subsectors. Rising sales volumes by grocers and non-specialised stores were offset by negative contributions from other subsectors, primarily clothing. Growth in internet sales slowed to a below-average rate, and growth is expected to slow further in the year to March.

“Conditions remain tough, especially for smaller retailers”

CBI Principal Economist Ben Jones commented: “The prospects for a recovery in investment in the retail sector are on the up. This is particularly the case among large retailers, driven by shifts online and the trend for re-purposing retail space.

“But the first months of 2020 haven’t brought a tangible change in fortunes on the high street. Conditions remain tough, especially for smaller retailers, and that won’t be changing any time soon.

“Retailers will be looking to the new Chancellor to recognise the challenges facing the sector in his upcoming Budget.

“In an increasingly digitalised world, there has never been a more important time for the Government to set out a path for reform to the broken business rates system. It must be made fairer and more sustainable across all sectors and regions.”

Meanwhile, wholesalers experienced their second consecutive month of growth, albeit at a slower pace than in the year to January, while motor traders reported a sharp increase in sales.

Overall, underlying momentum in the UK economy remains subdued at the start of 2020, but the CBI continues to expect a mild improvement over the course of the year. Household spending is set to remain a key driver of GDP growth, as a low unemployment rate underpins solid growth in real wages. For more details, see the CBI’s December economic forecast.

You can see a detailed rundown of the survey findings here.

Are you planning to invest in your business during the coming year? For tips on getting the best possible return on your investment, email me or call me on 020 7099 2621.