Retail sector warned of headwinds across 2022 after December slump

The CEO of the British Retail Consortium has said the retail sector faces a fight for survival in the year ahead as “headwinds” continue and consumers will be ever more selective in how they spend their shrinking disposable income.

Helen Dickinson made her comments as the Office for National Statistics today issued its retail snapshot for December which found sales volumes fell by 3.7%, with that figure falling by 7.1% for non-food stores.

On-lines sales bucked the trend as the proportion of retail sales online rose slightly to 26.6% in December 2021 from 26.3% in November, substantially higher than the 19.7% in February 2020 before the coronavirus pandemic.

Dickinson added: “The spread of Omicron may have slowed Christmas spending, but the perseverance of retailers helped deliver a successful Christmas for consumers. Retail workers pulled out all the stops to overcome supply chain issues, including an ongoing shortage of lorry drivers, to keep customers’ homes stocked with festive items. Growth in food outperformed non-food as many categories that had seen growth in November fell into decline, including furniture and household appliances.

“Customers face strong headwinds in 2022, with energy prices and National Insurance contributions both set to rise. The remaining disposable income also faces greater competition from a resurgence in tourism, eating out, sport and live music. Rising inflation is reducing consumer demand while increasing the costs for businesses. Retailers face rising wage bills, increased transport costs, and increased checks and documentation as a result of new import controls, all of which are forcing up prices at the checkout.”

Analysts said the Omicron variant had impacted sales as the hospitality restrictions meant that the traditional uplift in fashion sales was wiped out as events were cancelled.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

’Omicron’s ominous arrival in December rudely interrupted the retail recovery party for high street stores,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown. “As more shoppers stayed away, hunkering down for more muted celebrations at home, tills were quieter and volumes lower, offering very little Christmas cheer for retailers. Department stores, fashion chains, toy retailers and other non-food stores saw sales plummet, by 7.1% overall. Searching for the latest styles fell out of fashion as events were cancelled and fear of catching the virus spread. But given that shoppers had already been out in force in October and November ticking off gifts from Christmas lists, fewer people it seemed had to make that last minute dash to the shops.”

She warned that any hopes of a bounce back may be dashed.

“Even as plan B restrictions lift, the number of shoppers is unlikely to snap back to pre-pandemic times in high streets and city centre locations given that hybrid working is fast becoming the norm and household budgets are tightening,” Streeter explained. “Already two thirds of adults are reporting the cost of living has increased over the past four weeks, and with more energy price rises on the way there are likely to be far fewer shoppers merrily splashing the cash in the months to come.

“Spending on delayable purchases like furniture or homewares is likely to be hit, while value chains offering cut price fashions should be able to keep custom brisk as long as they aren’t forced to pass on rising costs to consumers in the form of steeper price tags. Brands offering iconic products should also prove more resilient. Such is the draw of coveted branded items like smart watches, trainers and handbags, fans are more likely to swallow consistent price rises. Luxury customers tend not to be as swayed by economic turbulence and income squeezes, including when money in the bank is losing its value at a faster rate than normal.”

Analysts said the Omicron variant had impacted sales as the hospitality restrictions meant that the traditional uplift in fashion sales was wiped out as events were cancelled.

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